Hi MyClosing readers,
We wanted to take the opportunity to share with you something that has recently become more popular with regards to Real Estate Transactions and try to provide some insight on the topic, that is Assignments.
What are Assignments?
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 (that is, where they take possession of the property).
Why is this relevant now?
Many buyers entered into new construction transactions many months or years ago, prior to the COVID era. Due to COVID, many people are facing a change in their own circumstances (employment, financial, familial) and so they are now unable to complete the new construction transaction and must sell/assign the agreement to a new purchaser.
What you should know as an Agent?
Here are two important points you should know on both sides of the Assignment.
1. Important point for the Assignor: Any profit made from the sale of a property through an assignment agreement is taxable by the capital gains tax.
2. Important point for the Assignee: The HST Rebate is typically not assignable to you as the new purchaser. There are options available to you, so please contact our office.
What should you know as a Purchaser?
Assignments are possible with home purchases but tend to be a lot more popular with condo purchases. Selling your home on assignment means that the sale takes place before the buyer takes possession of it. As the purchaser, the seller is usually looking for a buyer who can provide the seller with the amount of money at least equal to the deposit the buyer paid.
What you should know as the Seller?
As the assignor (seller) you must report any profit realized from the sale of home during the year of the sale. You should also remember when you sell your home on assignment, you will not qualify for the principle residence tax exemption, meaning the income gained on the sale would be treated as taxable business income. Furthermore, the CRA will assess your intentions at the original time of purchase to deem whether the transaction is exempt from GST/HST. If at the time of purchase the intention was to live in the property as your primary residence you may be exempt, however if this was for investment purposes you will not.
We hope this has been helpful and we look forward to helping you with your upcoming Real Estate transactions.