Increased Property Value from Pre-Construction Assignment Now Subjected to HST

Increased Property Value from Pre-Construction Assignment Now Subjected to HST

Monday Jul 25th, 2022


Recently, the conversation around foreign buyers and the transfer of ownership for pre-sale properties has become a hot button issue in the real estate market, such as whether HST will be required for the value-added portion of assignments, and whether foreigners can buy investment properties. Below is some valuable information for potential home buyers on this topic from Toronto real estate lawyer Mr. Yan Zhang.

Under the previous regulations, if a buyer purchased a pre-sale property with the intention of living in as primary residence, but the property is assigned before occupancy, the increase in property value would not be required to pay the 13% HST tax to the CRA (Canada Revenue Agency). However, under the new law, regardless of whether the purchase is intended to be self-occupied or not, the value-added part of the assignment is required to pay HST, without exceptions. Here’s an example:

Increased Property Value from Pre-Construction Assignment Now Subjected to HST

Source: Ottawa Citizen

If you purchased a pre-sale property for $500,000 and four year afterwards you sold it for $650,000 the difference would be $150,000. That $150,000 you made off of the sale would then be subjected to the 13% HST tax payable to the CRA in addition to any provincial sales tax.

A question that gets asked often is whether foreign buyers will even be able to purchase homes in the future. Mr. Yan Zhang replied that while this bill is currently submitted before the Parliament, it will still be required to pass a first, second and third reading before being sent to the Senate for final approval. Only when these steps are approved, then it will become law. He believes that as the Federal Government would like to regulate housing prices and affordability, this bill will passed without much discussion. It’s only a matter of time when this bill would become the law, and the time will not be far away.

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