Assignment of New Home Agreements
New Rules for GST/HST payments and the New Housing Rebate
The 2022 Federal Budget was tabled on April 7, 2022 (the “Budget”). Given the growing demand for new homes, it comes as little surprise that the government has proposed various new rules aimed at addressing affordability in the real estate market. Notably, certain measures are intended to curtail what is perceived by some as unfair or imbalanced situations in the market, namely the flipping of properties and the assignment of agreements of purchase and sale (“Agreements”) for new homes.
Here we will summarize the impact of the federal government’s new rules regarding assignments of Agreements.
Payment of GST/HST on Assignment Sales by Individuals
The new rules regarding assignments of Agreements address the payment and collection of GST/HST on the consideration paid by an assignee to an assignor under an assignment transaction. In turn, such new rules may affect the amount of the GST/HST New Housing Rebate credited to an assignee.
To appreciate the new rules, it is worth taking a step back. First, consider a situation where a buyer has been permitted to assign an Agreement to a third-party buyer. In such a situation, the original buyer (the “Assignor”) will oftentimes collect a fee from a new buyer (the “Assignee”) in exchange for the assignment. This fee collected from the Assignee may represent all or part of the deposit paid by the Assignor to the builder pursuant to the Agreement. Alternatively, the assignment price may be greater than the deposit paid. In this latter scenario, the Assignor is effectively making a profit on the assignment sale. In years past, this scenario has proven lucrative to those speculating on real property.
The Budget has brought the GST/HST issue associated with the above scenario back into focus. Is GST/HST is payable on the assignment sale? In other words, should the Assignor be collecting GST/HST on the “profit” component of the assignment and remitting same to Canada Revenue Agency? Why does this matter to you?
Prior to this year’s Budget, the answer to this question depended on the circumstances:
- If the Assignor originally entered into an Agreement with a builder for the primary purpose of selling their interest in the Agreement, the assignment sale was a taxable supply. GST/HST was applicable on the “profit” and ought to be collected and remitted to CRA by the assignor; OR
- If the Assignor had originally entered into the Agreement for another primary purpose, such as to occupy the home as a primary place of residence, the assignment sale would generally be exempt from HST/GST.
The Budget has now changed the rules of the game. This fact-based determination no longer applies.
The Budget will amend the Excise Tax Act to make all assignment sales of new homes taxable for GST/HST purposes. Put simply, an Assignor will be required to collect and remit GST/HST on the profit made on every assignment sale, irrespective of their original intention when they entered into an Agreement. This measure will apply in respect of any assignment agreement entered into on or after the day that is one month after Budget Day.
GST/HST New Housing Rebates
For new homebuilders, the takeaway from the above is that the new rules may affect the amount of GST/HST New Housing Rebate (the “Rebate”) granted to an assignee, should the builder agree to accept an assignment of the Rebate from the assignee in the first place. This is because the Rebate amount is determined based on the total consideration payable for a taxable supply of a home, including any other taxable supply of an interest in the home such as the profit on the assignment sale. As such, where a homebuilder elects to accept an assignment of the Rebate and give a credit to the Assignee for the Rebate amount on the statement of adjustments, the calculation of the Rebate will need to include both the sale price of the home as well as the profit received by the assignor in excess of the original deposit paid.
The homebuilder will therefore need to know the amount of profit on the assignment sale in order to properly determine the amount of the applicable Rebate. If you are a homebuilder or a new homebuyer and have questions about assignments of Agreements or the GSH/HST New Housing Rebate, contact the Real Estate Lawyers at Merovitz Potechin LLP.
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