The Hidden HST Bill Inside an Assignment Sale in Sault Ste. Marie

The situation

Abena had been saving toward a home of her own for several years, working as a commercial cleaner across a rotation of office buildings in Sault Ste. Marie. Buying a resale home in her price range meant competing for older properties that often needed work she could not afford to do herself, so when she found a listing for a new-build townhouse being sold by 'assignment,' she was intrigued rather than put off by the unfamiliar word.

An assignment sale happens when someone who signed an agreement of purchase and sale with a builder, before the home is even finished, decides not to go through with the closing themselves and instead sells their right to buy the property to someone else. The original buyer, called the assignor, steps aside. The new buyer, called the assignee, takes over the contract and eventually closes directly with the builder. The seller in this case was Rejean, a transit operator who had signed on with the builder more than a year earlier at a price of about $329,000, only to be offered a transfer to a different city for work. Rejean no longer wanted the home and needed out of the contract before the building was finished.

The two agreed on terms fairly quickly. Abena would repay Rejean the deposit already paid to the builder, plus an additional amount to compensate Rejean for the difference between the original contract price and what the home was now likely worth. Rejean's real estate agent drew up a one-page assignment agreement reflecting a single lump sum, and the deal was set to close within a few months, once the builder finished construction. Abena brought the agreement to Treadstone Law for review before signing, mostly expecting a routine confirmation that the numbers made sense.

The HST problem hiding in the assignment

The numbers on the page were straightforward enough. Rejean had already paid a deposit of about $33,000 toward the $329,000 purchase price. Rejean wanted that deposit back, plus a further $21,000 to reflect how much home values had risen since the original contract was signed. Added together, that was a payment of roughly $54,000 from Abena to Rejean at the time the assignment closed, on top of the balance Abena would separately owe the builder to complete the purchase.

What the one-page agreement did not mention at all was HST. Under federal tax law, an assignment sale of a newly built home is generally treated as a taxable transaction in its own right, separate from the underlying purchase from the builder. HST applies to what the new buyer pays the original buyer to take over the contract, but the portion that simply reimburses the deposit the original buyer already paid the builder can be excluded from that tax, so long as the assignment agreement says in writing that part of the price is for that reimbursement. Tax is payable on the balance, including any profit.

The trouble was that the one-page agreement, as drafted, said nothing about HST at all, did not identify who was responsible for collecting and remitting it, and did not allocate any part of the $54,000 to deposit reimbursement. Ontario's combined HST rate is 13 percent, and with nothing on paper to support excluding the deposit portion, tax on the full $54,000 could work out to roughly $7,000 — a real cost that neither Abena's budget nor Rejean's expectations had accounted for. Itemized correctly, only the roughly $21,000 premium would be taxable, closer to $2,700. Because the agreement was silent on the issue, that risk sat with whoever was left holding it once the builder's lawyer or the tax authority asked the obvious question, and by default that meant Abena, since she was the one writing the cheques on closing day.

There was a second issue layered on top. New homes purchased to be used as a buyer's primary residence generally qualify for a rebate that reduces the HST otherwise built into the purchase price, but that rebate depends on the final buyer's intention to live in the home, not the original signer's. Because Rejean had never intended to move in and Abena did, the paperwork needed to clearly establish that Abena, as the person actually taking title and living there, was the one entitled to claim that rebate. Left unaddressed, the builder's closing documents could easily have been drawn up around Rejean's original, non-qualifying position instead of Abena's.

What we did

1. Reviewed the assignment agreement against the underlying builder contract. Before anything else, we confirmed the original purchase price, the deposit amount and dates Rejean had actually paid, and whether the builder's agreement allowed an assignment at all and on what conditions. Some builder agreements restrict assignments or charge a fee to consent to one, and that needed to be confirmed before Abena committed to anything.
2. Rewrote the payment terms to itemize deposit reimbursement separately from profit. We redrafted the assignment agreement so the roughly $33,000 owed back to Rejean was identified specifically as repayment of the original deposit, and the further $21,000 was identified specifically as the assignment premium, the actual gain being sold. Separating the two made the numbers auditable and easy to explain to the builder and the lender, and meant only the assignment premium — not the deposit reimbursement — was subject to HST.
3. Built in the HST calculation and payment mechanics explicitly. The agreement was amended to state plainly that HST applied to the $21,000 assignment premium, with the $33,000 deposit reimbursement excluded, to specify which party was responsible for collecting and remitting it, and to require Rejean to provide the information needed to support that treatment if the builder or the tax authority ever asked questions about the transaction later. Leaving this to be worked out informally after the fact is how these numbers get disputed or missed entirely.
4. Confirmed Abena's eligibility for the new housing rebate and had it assigned to her correctly. We contacted the builder's closing coordinator to confirm that all rebate paperwork tied to the underlying purchase would be prepared in Abena's name, based on her intention to occupy the home as her primary residence, rather than left referencing Rejean's original application. This is a step that is easy to overlook in an assignment because the builder's file was originally opened under the assignor's name.
5. Negotiated builder consent and a clean closing timeline. The builder's agreement required written consent to the assignment and imposed an administration fee for processing it, and without that consent the builder could refuse to recognize Abena as the buyer at all. We handled that consent request alongside the rest of the paperwork, well ahead of the anticipated completion date, so it would not become a last-minute obstacle to closing once construction was finished and a firm closing date was finally set.
6. Coordinated financing and closing around the corrected numbers. Once the payment breakdown was fixed, Abena's mortgage broker could confirm her financing was arranged against the correct, lower assignment cost rather than the inflated figure the original one-page agreement implied, which mattered because a mismatch between the lender's numbers and the actual closing figures can delay funding at the worst possible time. We then managed the closing itself, coordinating the funds flow between Abena, Rejean, and the builder so each payment matched exactly what the amended agreement described.

The outcome

The transaction closed on schedule several months later, once the builder finished construction and set the closing date. Because the assignment agreement clearly itemized the deposit reimbursement and stated that HST applied only to the $21,000 assignment premium, and spelled out who was responsible for remitting it, the roughly $2,700 in tax was budgeted for from the outset rather than surfacing as a surprise days before closing. The builder's closing statement was also issued with the new housing rebate applied correctly in Abena's name, reflecting her genuine intention to live in the home, rather than left tangled up with Rejean's original, non-qualifying paperwork.

For Abena, the practical result was that the closing costs she budgeted for matched the closing costs she actually paid, with no unexpected tax bill arriving at the lawyer's trust ledger in the final days before closing. For Rejean, the corrected agreement meant a clean, well-documented exit from a contract they no longer wanted, with the tax treatment of their profit properly supported rather than left as a question mark that could resurface later if ever reviewed.

Assignment sales are becoming more common in new-build markets, including in smaller Ontario cities where buyers increasingly encounter them without much familiarity with how they work. They are not inherently risky, but the tax treatment sits in a genuinely easy-to-miss corner of the transaction, since it depends on paperwork drafted correctly at the point of assignment rather than something a buyer can fix after the fact. Catching it here meant Abena moved into her new home with the numbers she had actually planned for.

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