HST on assignments is an important tax consideration in Ontario real estate, especially when dealing with assignment sales. An assignment sale occurs when the original purchaser of a property (known as the assignor) sells their rights and interest in the agreement to another buyer, the assignee, before the official closing date with the builder or seller.
When a property is sold on assignment, the assignor is responsible for paying HST on any profit earned from the transaction, in addition to the original purchase price. This amount must be clearly outlined in the assignment agreement, which separates the original purchase price from the profit made on resale.
To avoid errors or missed obligations, it’s highly recommended to work with an experienced real estate lawyer Oakville in Ontario. They can draft a legally sound agreement that reflects the full scope of the deal and ensures all HST on assignments is properly addressed.
In the 2022 Federal Budget, the federal government introduced key updates affecting how HST on Assignments is applied to New Home Contracts.
As of May 7, 2022, all real estate assignment sales for new homes are subject to Harmonized Sales Tax, regardless of the original buyer’s intent. Previously, the HST outcome depended on whether the initial purchaser planned to move into the home. That exemption has now been removed.
This means that every assignment agreement involving a new home is now considered a taxable supply under HST Tax Canada rules. If you’re navigating this process, it’s essential to understand your obligations. A qualified Ontario real estate lawyer at Khan Law can help make sure your transaction complies with these updated HST guidelines.
To clear up a long-standing area of confusion, the government has clarified how HST on assignments applies to deposits. According to the HST Info Sheet GI-120, the deposit amount is exempt from HST, but only under specific conditions. For the exemption to apply, the Assignment Agreement must explicitly state that part of the assignment price is a reimbursement of the deposit already paid by the original buyer under the original purchase contract.
In simple terms, the agreement must confirm in writing that the assignment price includes the deposit. If this condition is met, HST is only payable on the profit, the amount above and beyond the deposit. For example, if the assignor paid a $40,000 deposit and assigns the property for $60,000 more, only the $20,000 difference is subject to HST in Ontario.
Clarity in the agreement is essential. It's strongly recommended that both assignors and assignees work with a knowledgeable real estate lawyer to draft and review assignment terms to provide compliance and avoid unexpected tax issues.
At Khan Law, our experienced real estate lawyers can guide you through the complexities of HST on assignments with clarity and care. Reach out today, we’re here to help. Whether you're the assignor or assignee, we ensure your transaction is structured to meet legal and tax requirements.
Our team takes the time to explain your obligations and protect your interests every step of the way. With our guidance, you can move forward with certainty and steer clear of unexpected expenses.
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Khan Law is a boutique law practice that has been providing legal services to the Greater Toronto Area since the year 2000.