News & Views
Do I Owe HST On My Assignment Sale?
Written by David Meirovici
For some, purchasing a pre-construction condominium or freehold home can be viewed as a great low-cost opportunity, but if your intentions of living in that property are not clear from the beginning, you could wind up paying HST on something you never even owned.
Under the current GST/HST guidelines, the Canada Revenue Agency provides that “the sale of an interest in a new house is generally taxable where the person selling the interest is a builder of the house”. To understand whether this applies to you, we must understand what it means to “sell an interest” in a house and the definition of a “builder”. The answer to both may surprise you.
Did I Sell an Interest in the Home?
Generally speaking, all assignments are a sale of an interest in a home. The simple act of signing an agreement to purchase a newly constructed home or condominium is in of itself an acquisition of an interest in that home. As a result, the moment an individual or corporation then assigns that agreement to someone else (before final closing of the property), they have effectively sold that interest in the property.
Am I a “Builder” subject to HST?
Under the GST/HST guidelines, the term “builder” is not restricted to someone who physically constructs a home. Instead, a Builder includes any person or corporation who acquires a home, before it has been occupied, for the “primary purpose” of selling or leasing that property. In turn, determining whether an assignor will owe HST depends entirely on that person/corporation’s intention at the time of purchasing the property.
If it can be shown that the assignor’s primary intention in buying the property was to either sell or lease it once complete, then HST will be payable on both 1.) the Gross Profit made under the assignment transaction and, 2.) such portion of the assignment price related to the return of those deposits originally paid by the assignor to the developer. If, however, the Assignor can show that the property was always meant as a primary place of residence, they would not meet the definition of a “builder” and subsequently no HST would be payable. This is the case where despite a person’s intentions to live in the property, a reasonable change in circumstances (divorce, change of financial wellbeing), have caused the decision to assign.
What does the CRA Look at in Determining Intention?
In making this determination of Intention, a few of the items that the CRA will look at include:
1. Did the assignor list their interest while the property was still under preliminary construction?
2. Did the assignor’s family situation not match the unit/home that was purchased (i.e. is the property a 1-bedroom condominium for a family of 4)?
3. Did the assignor arrange preliminary financing terms beyond their financial means, or on a short-term basis?
4. Does the assignor’s pattern of conduct suggest that their occupancy of the property would not be permanent (i.e. did the purchaser make several property purchases at the same time).
While none of the above are determinative, the onus is on the assignor to provide sufficient documentation to counteract a CRA assessment that HST is payable. Because of this, those buyers hoping to quickly assign their new build condominiums for a profit, must understand that not only is HST payable on that assignment where the property was always meant as an investment, but that even if it wasn’t, the original intention to occupy is well documented and supported.
*The material provided in this article is for general information purposes only. It is not intended to provide legal advice or opinions of any kind.
About the Author:
David Meirovici practices primarily in the areas of commercial and residential real estate, acting on behalf of individuals, corporations and financial institutions. In addition, David is a member of our corporate law group, providing support on commercial transactions as well as advising on will and estate matters.
Happy Holidays from the FIJ Law Team!