Land Transfer Tax When You Assign a Pre-Construction Purchase

Maybe you bought a pre-construction home and now want to sell your place in the contract before closing. Or maybe you are the person taking over that contract. Either way, you are probably asking who pays land transfer tax and what amount it is calculated on.

This article explains in general terms how Ontario land transfer tax treats an assignment of a new-home agreement of purchase and sale. Income tax, HST and builder consent are separate questions that a lawyer or accountant should review.

Who pays the tax

The tax is payable by the person who acquires land or a beneficial interest in land, and it is payable when the transfer is registered. On an assignment, the assignee is the one who ends up taking title from the builder at closing, so the tax generally falls on the assignee in practice.

That said, the parties can agree on who bears the cost between them, and the assignment agreement should say so clearly. Do not assume. Ask a lawyer to confirm how the cost is allocated in your deal.

How the taxable value is worked out

When a buyer assigns a new-home agreement to a third party, the taxable value includes the assignment consideration, the original purchase price, and any extras or upgrades. In other words, the tax is not just on the original price, and it is not just on what the assignee pays the assignor.

• The assignment consideration, meaning what the assignee pays for the assignment.
• The original purchase price under the builder's agreement.
• Extras and upgrades.
• Other costs that are part of the true value of the consideration, such as lot levies, development charges and school levies passed to the buyer.

Two things are left out. HST is excluded from the value of consideration, with rules where new housing rebates are assigned to the builder. Chattels such as appliances and furniture are also excluded and reported separately.

Assignor and assignee compared

For the assignor, the rules for income tax and HST on the profit from an assignment are separate from land transfer tax. They are not covered here, so speak with an accountant.

Timing, registration and refunds

The legal definition of convey includes agreeing to sell land, so an agreement of purchase and sale or a related notice is taxable when tendered for registration. If the affidavit states that tax was already paid on the agreement or notice, no further tax is due when the later conveyance is registered. Whether any of this applies to your assignment depends on how it is documented and registered.

If the assignee is an eligible first-time buyer, the refund of up to $4,000 may be available. The assignee must meet the age, residency, ownership and spousal conditions, and must occupy the home as a principal residence within nine months of the transfer date. For pre-construction, since December 13, 2007 all eligible homes, new or resale, qualify.

If a return is required for an unregistered disposition and is not filed within 30 days, the result may be an assessment of tax, penalty and interest. Your lawyer can tell you whether that situation arises.

What to do next

• Get the builder's consent requirements and your assignment agreement reviewed before you sign.
• Agree in writing on who bears the land transfer tax.
• Collect the original agreement, schedules, upgrade selections and any builder charges.
• Ask your lawyer to estimate the taxable value using the assignment price, original price and extras.
• Assignors should ask an accountant about income tax and HST.
• Assignees who are first-time buyers should confirm refund eligibility and the move-in timeline.

Assignments involve several moving parts, so involve a lawyer before you sign, not after closing.

Frequently asked questions