The simple definition of a real estate assignment is that contractual rights to a piece of property are assigned from one party to another. This means that before the legal ownership of a property is transferred, the buyer would purchase the rights from the seller and builder.
The tax implications are whether to claim the assignment as taxable income or a taxable capital gain from the profits. While most will report it as a taxable capital gain, over the past few years the CRA has been aggressive with reviewing these types of transactions for failing to report this as taxable business income.
The determination of whether it should be reported as a taxable capital gain or as taxable business income is a very grey and complex area. The Income Tax Act has no guidelines. The classification will be made by the courts and the courts will look at previous case laws to draw their conclusions.
One factor the courts will consider is the number of similar transactions happen with the taxpayer. At all times, the law will side that it be reported as a taxable business income and HST be remitted.
This is general comment, and you should contact Tax Partners for any questions by sending an email to [email protected] or (905) 836-8755.
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