An assignment is a sales transaction where the original buyer of a property (the “assignor”) allows another buyer (the “assignee”) to take over the buyer’s rights and obligations of the Agreement of Purchase and Sale, before the original buyer closes on the property. The assignee is the one who ultimately completes the deal with the seller.
In Ontario, assignments are more common in newly built homes and condos than on re-sale properties, but they are possible on any type of trade.
Implications for ASSIGNOR:
- Get your deposit back
- Avoid paying land transfer taxes
- Avoid paying HST
- Maximize your return at a time when the market is balanced in your favour
- Tax implications on the potential markup earned (capital gain or business income?)
Implications for ASSIGNEE:
- Sizable deposit in comparison to resale (5% is typical on resale versus 20% for new build)
- Have to pay land transfer taxes
- New, never lived-in
- Immediate possession (if during occupancy period)
- Potential HST implications on the sale of newly built homes and condos
Let’s take a closer look at the HST implications for assignees.
HST on new builds
In Ontario, HST applies to newly constructed property. New home builders’ advertised prices are inclusive of HST so most people don’t even realize that tax applies to new homes. There is also a rebate available but you wouldn’t know that either because the HST rebate is applied for by the builder on behalf of the buyer and factored into the advertised sale price.
From the point of view of the assignee, they would have to pay the HST on the original price paid by the assignor as well as the HST included on the markup and then apply for the rebate after the fact. The markup is the difference between the price paid by the original buyer and the resale price paid by the assignee.
So, if you’re thinking of purchasing an assignment, please keep in mind that HST is an upfront cost unlike the land transfer tax rebate and the first time buyer rebate which are applied immediately at closing.
Confused? Call me and I’d be happy to go over it in detail and do the math for you. Assignments are a fantastic opportunity to buy brand new, never lived in, and not have to wait the 2 to 5 years to enjoy it. It’s just a matter of affording to wait to get your money back.