Understanding the Tax Implications of Condo Assignment Sales in Ontario
- Sundeep Bahl
- Jan 2
- 3 min read
Condo assignment sales have become a popular way for buyers and sellers to navigate Ontario’s competitive real estate market, especially in cities like Toronto. While many focus on the price and builder policies, the tax side of these transactions often gets overlooked. Understanding the taxes involved, including HST and income reporting, is essential to avoid unexpected costs and penalties. This post breaks down the key tax considerations you need to know when dealing with condo assignment sales in Ontario.
Image: A modern condo building in Toronto, representing typical properties involved in assignment sales.
How HST Applies to Condo Assignment Sales
Harmonized Sales Tax (HST) is a major factor in condo assignment sales. It applies differently depending on the stage of the property and the nature of the transaction.
Pre-construction condos that have never been lived in usually have HST applied on the profit made from the assignment. This profit is the difference between your original purchase price and the price you assign the contract for.
If you are transferring deposits to the buyer (assignee), HST may also apply on these amounts, depending on the agreement and builder policies.
For example, if you bought a pre-construction condo for $500,000 and assign it for $550,000, the $50,000 profit is subject to HST. The current HST rate in Ontario is 13%, so you would owe $6,500 in HST on that profit.
It’s important to note that HST rules can be complex and vary based on the builder’s involvement and whether the property is new or resale. Consulting a tax professional can help clarify your specific situation.
Capital Gains or Business Income: How Your Profit is Taxed
The Canada Revenue Agency (CRA) distinguishes between capital gains and business income when it comes to profits from condo assignments.
If you bought the condo to live in it, any profit from the assignment is usually treated as a capital gain. Only 50% of capital gains are taxable. This means if you made $50,000 profit, only $25,000 would be added to your taxable income.
If you are flipping condos for profit or have completed multiple assignments, the CRA may classify your earnings as business income. In this case, 100% of the profit is taxable.
Your intent at the time of purchase is critical. Keep records such as emails, contracts, and personal notes that show whether you planned to live in the condo or sell it for profit. This documentation can support your tax position if the CRA questions your assignment sale.
Tax Treatment of Deposits and Reimbursements
When selling a condo assignment, the buyer reimburses you for deposits already paid to the builder. These reimbursements are not considered profit but may still have tax implications.
The deposit reimbursement itself is not taxable income since it is simply a return of your money.
However, HST may apply on top of the reimbursement depending on the terms of the assignment agreement and builder policies.
For example, if you paid $50,000 in deposits and the buyer reimburses you that amount, you do not pay tax on the $50,000. But if the assignment agreement requires the buyer to pay HST on the deposit transfer, you need to account for that.
Always confirm these details with a tax expert to avoid misreporting and unexpected tax bills.
Deducting Legal and Realtor Fees from Your Profit
Selling a condo assignment usually involves legal fees and realtor commissions. These costs can reduce your taxable profit if properly documented.
Keep all invoices and receipts for legal and realtor fees.
These expenses can be deducted from your assignment profit, lowering your overall tax liability.
For example, if you made $50,000 profit but paid $5,000 in legal and realtor fees, your taxable profit could be reduced to $45,000.
Maintaining detailed records is essential for accurate tax reporting and maximizing your deductions.
Risks and Penalties for Misreporting Assignment Income
The CRA has increased its focus on condo assignment sales due to the potential for tax avoidance. Misreporting income or failing to declare profits can lead to serious consequences.
Penalties can include fines, interest on unpaid taxes, and audits.
The CRA may reassess your tax returns and classify your income differently, leading to higher taxes owed.
To avoid these risks, be transparent in your tax filings, keep thorough records, and seek professional advice if you are unsure about your tax obligations.