On April 7, 2022, the Minister of Finance Canada introduced Budget 2022, which put forward a proposed amendment to Part IX of the Excise Tax Act (the "ETA") via Bill C-19: Budget Implementation Act, 2022, No. 1. Bill C19 received Royal Assent on June 23, 2022 and it has become law with significant implications for the taxation of assignment sales related to newly constructed or substantially renovated single-unit residential complexes or residential condominium units.
An assignment sale refers to a type of transaction where a purchaser (known as the assignor) who has entered into an agreement of purchase and sale with a builder (the "original APS") of a new house chooses to sell (assign) their rights and obligations under the agreement to a different person (known as the assignee). The agreement that outlines the terms and conditions of the assignment of the purchase and sale agreement is referred to as the assignment agreement and needs to be signed by the assignor, the assignee and the builder (the "Assignment APS"). The builders normally retain absolute discretion in the original APS whether to consent to the assignment of the property to a third party and there may be a fee stipulated in the original APS for the assignment.
Before Bill C-19, an assignment sale made by an individual would either be taxable or exempt. If the primary purpose of entering into the original APS was of a commercial or business nature, such as to sell the property, the sale would be subject to GST/HST. If the individual's primary purpose was to use the property as their personal residence, the assignment sale was generally tax exempt. This left room for dishonesty and the Canada Revenue Agency (CRA) closed the door on the exemption.
Bill C-19 added the new s. 192.1 of the ETA, which states that if a person, other than the builder, sells the residential property by way of assignment of the original APS, the following rules will apply:
The assignment sale is deemed to be a taxable supply of real property that is an interest in the residential complex or condominium unit.
The consideration for the assignment sale is deemed to be equal to the amount calculated using the formula:
A – B
Where
A is the consideration for the other supply as otherwise determined for GST/HST purposes (i.e. assignment price)
B is:
(i) if the other agreement indicates in writing that a part of the consideration for the other supply is attributable to the reimbursement of a deposit paid under the purchase agreement, the part of the consideration for the other supply that is solely attributable to the reimbursement of the deposit paid under the purchase agreement (i.e. deposit(s) paid to the builder)
(ii) in any other case, zero.
Section 192.1 applies in respect of any assignment agreement made after May 6, 2022.
Treatment of the Deposit
Typically excluded from GTS/HST. Where the agreement explicitly states in writing that a portion of the consideration is intended to reimburse the assignor for a deposit paid to the builder pursuant to the original APS, the proposed amendment would exclude the amount related to the deposit from the consideration for a taxable assignment sale.
Who is Responsible for the Tax?
The responsibility is with the assignor/seller to collect the GST/HST and submit the tax to the CRA in the case of a taxable assignment sale. For non-resident assignors, the assignee would be required to self-assess and pay the GST/HST directly to the CRA.
If you are considering of selling your pre-construction property via assignment, you need to include the GST/HST in the purchase price that you will have to pay to the CRA.
To learn more about your upcoming real estate assignment sale, you may get in touch in the following ways:
Arra Law Firm app,
email at reception@arralawfirm.com, or
phone at 905-629-2722.
