Condo assignments – what you need to know about HST

Many people think that doing an assignment of a home purchase agreement is a simple transaction, but the reality is far different. It is an extremely complex transaction and, if not handled properly, can result in the loss of a lot of money. There are two issues relating to harmonized sales tax (HST) in Ontario that assignors (sellers) and assignees (buyers) should consider when entering pre-construction freehold and condominium assignments.

HST on assignment fees

In Ontario, HST is payable on an assignment sale of an Agreement of Purchase and Sale (APS). Remember, when you do an assignment, you are not selling the house or property – you are selling only your APS. The issue is what you pay the HST on, who pays it and how much that will be. Generally, the HST will be in addition to the price, and paid for by the buyer.

Your assignment agreement must be clear to show what the profit is on the transaction, as it should only be the profit that is subject to HST.

The standard realtor’s form of an assignment agreement does not include sections on crucial issues regarding HST. It is important you get a lawyer to help carefully draft the assignment agreement to reduce the risk of future issues with CRA. In a resale home situation, HST is payable on the profit only provided the assignment agreement is properly drafted.

As an interesting aside, most people would reasonably conclude that getting back your deposit is not subject to HST, but CRA takes the position that it is – even though CRA lost in a court ruling that said there is no HST on deposit returns.

HST new housing rebate

Adjustments on closing can surprise homebuyers new to pre-construction properties, and assignments only add to the potential shock. The builder will want to collect the HST on closing of the original purchase where there has been an assignment sale, and the buyer will need to get the HST back later.

Newly built properties are subject to HST, but some or all of the HST payable can be recovered immediately on closing through the HST New Housing Rebate (the Rebate). The Rebate has specific rules that may affect a purchaser whose circumstances change over time; the Rebate is provided only if the purchaser or an immediate family member resides at the property, and if the builder accepts that this is correct and there has been no assignment outside that group.

In pre-construction condominium assignments with occupancy closings, an assignee must confirm whether the unit has ever been occupied. If a unit has been occupied, then the assignee may not be eligible for the Rebate.

The moral of the story is that you really should retain an experienced lawyer to help you through these issues, whether buying or selling. Realtors provide an important service, but a lawyer will take the time to review everything properly and make sure you are protected, and that there are no open questions.