Is Selling a Pre-Construction Condo Assignment Taxable in Ontario?

You signed an agreement to buy a condo that has not been built yet, and now you are thinking about selling your place in that agreement to someone else before closing. This is called an assignment sale. The profit can be large, and so can the tax questions.

This article explains how the CRA generally treats assignment profit, where GST/HST comes in, and what the flipping rule adds. Details such as the exact HST amount depend on your agreement and your status, so a lawyer or accountant should confirm them before you sign.

What an assignment sale is

In an assignment, you do not own the condo yet. You hold a right to buy it under your purchase agreement with the builder. In an assignment sale, you sell that right to someone else for a price. Whether and how this can be done depends on your agreement, so it is worth confirming with a lawyer.

For tax purposes, the central question is what kind of income the profit is. The answer drives how much of it is taxed.

Business income, not a capital gain

The CRA states that profit from an assignment sale, such as a pre-construction condo, must be reported as business income. That matters because only one-half of a capital gain is taxable, while business income is not eligible for that one-half treatment.

More generally, when the CRA audits a real estate sale, it looks at the type of property, how long it was owned, your history of selling similar properties, any work done, why it was sold, and your intention in buying it. A property bought with the main intention of selling it is taxed on the resulting gain as business income.

The one-half inclusion for capital gains was left unchanged after the proposed increase was dropped, so the difference between the two treatments is still significant.

The 365-day flipping rule can apply as well

Separate from the assignment rule, a gain on a housing unit in Canada, or a right to acquire one, held for less than 365 consecutive days before disposition is deemed to be business income. The CRA notes the rule applies to a right to acquire a housing unit, so an assignment of a purchase agreement held under 365 days is caught.

If the flipping rule applies and you have a loss rather than a gain, a business loss on a flipped property is deemed to be nil. The rule does not apply to dispositions that reasonably result from, or are in anticipation of, certain life events, such as death, a serious illness or disability, an eligible relocation or a marriage or common-law breakdown, among others in the Act. Whether an exception fits your situation is a question of fact.

GST/HST on an assignment

As of May 7, 2022, all assignment sales of newly constructed or substantially renovated residential housing are taxable for GST/HST purposes. For a new build not yet occupied, the CRA says GST/HST applies to the total received, including any deposit paid.

How that works in practice, such as whether you must be registered, how the deposit is treated and how the tax is calculated, depends on your agreement and your circumstances. Confirm these details with an accountant or lawyer before you set a price.

What to do next

Plan the tax before you accept an offer. Once you assign the agreement, the tax outcome is largely set, and unreported dispositions can be reassessed beyond the normal period, limited to amounts related to that disposition.

• Gather your purchase agreement, amendments, deposit receipts and the builder's assignment rules.
• Record the date you signed the agreement, since the 365-day count matters.
• Note why you are selling, as intention and reasons for sale are part of the CRA's review.
• Ask an accountant whether GST/HST must be collected and remitted on your assignment price.
• Ask a real estate lawyer to review the assignment agreement and the builder's consent.
• Set aside money for the tax on the profit before spending it.

Frequently asked questions