On April 7, 2022, the Minister of Finance Canada proposed the changes to the assignment sales. The proposed amendment to the ETA would make all assignment sales, including those made by individuals, in respect of newly constructed or substantially renovated residential housing taxable for GST/HST purposes. Furthermore, the proposed amendment would exclude any amount attributable to a deposit paid by an assignor to a builder from the consideration for a taxable assignment sale, when certain conditions are met. The proposed amendment would apply to all assignment agreements entered into after May 7, 2022.
When this new regulation starts?
Proposed changes applies in respect of any supply by way of assignment of an agreement of purchase and sale if the supply is made after May 7, 2022.
Who should remit the GST/HST on the assignment sales under the new rule?
The assignor (Seller) in respect of a taxable assignment sale would generally continue to be responsible for collecting the GST/HST and remitting the tax to the Canada Revenue Agency (CRA). If the assignor (Seller) is a non-resident of Canada, the assignee (Purchaser) would continue to be required to self-assess and pay the GST/HST directly to the CRA.
Is the portion of the deposit taxable?
When an assignment agreement is entered into on or after May 7, 2022, and the assignment agreement indicates in writing that “a part of the consideration is attributable to the reimbursement of a deposit paid by the assignor to the builder” under the purchase and sale agreement, the deposit is excluded from GST/HST.
How much should you pay?
For example, John entered an purchase agreement price of $1,000,000 with the Builder A in Ontario (13% HST). He has paid $200,000 deposit and decided to sell this assignment contract before closing. David decided to purchase from John at $1,250,000.
John (Assignor) and David (Assignee)
1. David will pay John $200,000 for the deposit
2. David will give John another $250,000 for profit
3. If the assignment agreement stated “ HST included”, John real profit would be 250,000/1.13 =221,238.94; John should submit this HST $28,761.06 to the CRA.
If the assignment agreement stated “HST not included”. John real profit would be 250,000; and John should charge 250,000*0.13=32,500 from David, and John should submit HST 32,500 to the CRA.
Will this new rule affect the new housing rebate?
Only one new housing rebate application can be made for each new house. Therefore, an assignee (Purchaser) cannot submit a rebate application through a builder for the tax paid to Builder on the purchase of the house and submit a second rebate application for the tax paid to the assignor (Seller) . The assignee (Purchaser) should file their new housing rebate application directly with the CRA including the new housing rebate amount and the tax paid to the assignor.
Reference: Proposed GST/HST Treatment of Assignment Sales - Canada.ca