Assignment sales have become a significant part of the Canadian pre-construction market — especially in Toronto and Vancouver. They allow original purchasers to sell their contract before closing, often at a profit. But the tax and legal implications are complex, and getting them wrong can be expensive. Here’s everything you need to know about both sides of the transaction.
How an assignment sale works
| Step | What Happens | Who’s Involved |
|---|---|---|
| 1. Original purchase | Buyer (assignor) signs APS with developer and pays deposits | Assignor + developer |
| 2. Decision to assign | Assignor decides to sell the contract before closing | Assignor |
| 3. Find an assignee | Assignor (or their agent) finds a new buyer | Assignor + real estate agent |
| 4. Developer consent | Assignor requests consent from the developer (if required) | Assignor + developer |
| 5. Assignment agreement | Assignor and assignee sign an assignment agreement | Assignor + assignee + lawyers |
| 6. Assignee pays assignor | Deposit reimbursement + assignment profit to assignor | Assignee → assignor |
| 7. Closing | Assignee closes with the developer, takes title, and arranges mortgage | Assignee + developer |
What the assignee pays
| Component | Example |
|---|---|
| Original purchase price | $550,000 |
| Assignor’s deposits paid | $85,000 |
| Assignment premium (profit) | $65,000 |
| Total paid to assignor | $150,000 ($85,000 deposit reimbursement + $65,000 profit) |
| Mortgage at closing | $550,000 (based on original purchase price) |
| Effective price | $615,000 ($550,000 + $65,000 premium) |
Tax implications for the assignor (seller)
This is where assignment sales get complicated. CRA has increased scrutiny on assignment profits.
Income classification
| Classification | Tax Treatment | When It Applies |
|---|---|---|
| Business income (most common for assignments) | 100% taxable at your marginal rate | CRA’s default position — intent to flip/profit |
| Capital gain | 50% inclusion rate | Only if you genuinely intended to hold the property long-term |
| Adventure in the nature of trade | 100% taxable (same as business income) | One-off transaction with profit intent |
CRA’s position: Assigning a pre-construction contract is generally considered a profit-motivated transaction. The profit is usually taxed as business income — fully taxable at your marginal tax rate with no capital gains inclusion rate advantage.
Assignment profit tax example
| Detail | Value |
|---|---|
| Assignment profit | $65,000 |
| Marginal tax rate | 43.41% (Ontario, $100K+ income) |
| Tax owing on assignment profit | $28,217 |
HST on assignment sales
| Situation | HST Applicable? |
|---|---|
| Assignment of a new residential condo | Likely yes — HST on the assignment profit |
| Assignment of a new house/townhouse | Likely yes |
| HST rate (Ontario) | 13% |
| HST on $65,000 profit | $8,450 |
| Can you claim input tax credits? | Generally no (you’re not in the business of building) |
Combined tax + HST on a $65,000 assignment profit (Ontario):
| Tax | Amount |
|---|---|
| Income tax (43.41%) | $28,217 |
| HST (13%) | $8,450 |
| Total tax | $36,667 |
| Net profit after tax | $28,333 |
Many assignors are shocked to discover they keep less than half of their assignment profit.
CRA reporting requirements
The CRA requires assignment sales to be reported. As of 2023, all assignments of Canadian residential property must be reported, and the CRA receives data from land registries and developers.
| Requirement | Details |
|---|---|
| Report on your tax return | Assignment profit as business income (or capital gain if you can justify it) |
| HST filing | May need to register for HST and file a return |
| Information sharing | Developers may report assignments to CRA |
| Anti-flipping rule | Properties held for less than 365 days are automatically taxed as business income |
Tax implications for the assignee (buyer)
| Factor | Details |
|---|---|
| Purchase price (for mortgage purposes) | The original APS price ($550,000 in our example) |
| True cost basis | Original price + assignment premium ($615,000) |
| HST on the original unit | Handled through the builder (same as any pre-construction purchase) |
| Future capital gains | Calculated from your true cost basis ($615,000), not the APS price |
| Land transfer tax | Based on the original purchase price (varies by province) |
Legal considerations
For the assignor
| Consideration | Details |
|---|---|
| Developer consent | Check your APS — most require written consent |
| Assignment fee | $3,000–$10,000+ (paid to the developer) |
| Marketing restrictions | Some developers prohibit public marketing of assignments |
| Legal fees | $2,000–$4,000 for the assignment agreement |
| Real estate agent commission | If using an agent to find the assignee (2%–5% of assignment value) |
| Tax planning | Consult an accountant before listing the assignment |
For the assignee
| Consideration | Details |
|---|---|
| Due diligence | Review the original APS, development plans, and builder reputation |
| Legal review | Have your own lawyer review both the APS and assignment agreement |
| Mortgage qualification | You must qualify at closing — which could be years away |
| Deposit protection | Verify TARION coverage extends to assignees (Ontario) |
| Deficiency rights | Confirm you inherit the same warranty and PDI rights |
| HST obligations | Confirm HST handling and rebate eligibility with your accountant |
Costs of an assignment sale
For the assignor
| Cost | Typical Amount |
|---|---|
| Developer assignment fee | $3,000–$10,000+ |
| Legal fees | $2,000–$4,000 |
| Real estate agent commission | 2%–5% of total value |
| Income tax on profit | Marginal rate (29%–53.53% depending on province and income) |
| HST on profit | 13% (Ontario) or 5% GST (no-PST provinces) |
For the assignee
| Cost | Typical Amount |
|---|---|
| Assignment premium | Negotiated with assignor |
| Legal fees | $2,000–$4,000 |
| Due diligence costs | $500–$1,000 |
| Mortgage costs at closing | Standard closing costs |
| Land transfer tax at closing | Provincial rates on the APS price |
Assignment sale risks
| Risk | Who Bears It | Details |
|---|---|---|
| Developer delays | Assignee | Closing moves further out; mortgage rates may change |
| Developer bankruptcy | Both | Deposit protection may be limited |
| Market decline | Assignee | May close on a unit worth less than the effective purchase price |
| CRA audit | Assignor | CRA actively audits assignment profits |
| Mortgage qualification | Assignee | Must qualify at future closing date |
| Contract restrictions | Assignor | Developer may block or delay the assignment |
Should you buy an assignment?
| Advantage | Disadvantage |
|---|---|
| Get a new unit at a potentially lower price than the current market | Premium over original price may negate the discount |
| Shorter wait time (construction partially complete) | Still subject to delays |
| May inherit developer incentive package | No direct relationship with the developer |
| Can view the actual building in progress | May not be able to tour the specific unit |