New Assignment Rule 2022 – Buyer to Pay HST on Profit

New Assignment Rule 2022 – 13% HST in Ontario

Assignment sales entered into after May 7, 2022 are now subject to HST on the profit portion of the final price.

Pre-construction assignment sales are now subject to 13% HST in Ontario. This has to be paid only on the first buyer’s profit when the contract is sold to a second purchaser.

The HST is not charged on the total price of the property but only on the profit portion. It has to be paid by the second purchaser.

What is an Assignment Sale?

Assignment sale is when a buyer wishes to sell or offload his or her builder’s new condo at pre-construction stage to another interested buyer.

So there are three parties involved in an assignment sale: the builder, the first buyer and the second buyer. The first buyer has an “Agreement of Purchase and Sale” with the builder. The first buyer sells his “Agreement of Purchase and Sale” to the second buyer.

In a pre-construction assignment sale, since the property is not yet built, it is merely a transaction of “the interest in the Agreement of Purchase and Sale” of that property. The second buyer is not buying the property, he or she is buying the Agreement of Purchase and Sale of that property. This is known as an assignment sale.

Most of the builders of new condos permit assignment sales, often free of cost, or at a predetermined cost.

Get some tips and read more about the pros and cons of assignment sales.

What do the terms Assignor and Assignee mean?

Assignor (or the first buyer) is a person who is the original purchaser of a pre-construction home or condo directly from the builder. When the assignor sells the pre-construction unit to another purchaser before closing, that purchaser is known as an assignee.

An example of an Assignment Transaction

In simple terms, if an assignor bought a pre-construction home or condo for $500,000 and sells it as an assignment sale to an assignee for $600,000, then the assignee has to pay 13% HST on $100,000 to the government. It is the job of the lawyers to ensure that the HST portion is remitted to the government.

Why have these changes been introduced?

These measures have been introduced by our government to get more money into their coffers as they see a lot of speculation going on in the real estate market with people making handsome profits in recent years. It is aimed at curbing the rampant speculation and to slow down the feisty real estate market.

This rule intends to tax the assignee, just like any other buyer who purchases any goods and services from the market and pays 13% tax in Ontario.

As for the assignor, he or she will have to pay tax on the total income or the profit he or she makes from the transaction.

Note: This blog post and the contents herein DO NOT serve as legal or financial advice. Kindly consult with your professional accountant and lawyer before making any decision regarding sale or purchase of an assignment home or condo, and payment of taxes arising out of it.

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