The real estate market is ever-evolving, and understanding the financial implications of your investment is key. A significant aspect that often puzzles buyers and sellers is the application of GST on presale home assignments. Let's delve into what this means for you.

What is a Presale Assignment?

A presale assignment occurs when the original buyer (assignor) of a property under construction sells their purchase contract to a new buyer (assignee) before the completion of the property. This is common in markets with rapidly developing new housing projects like Greater Vancouver.

GST Implications:

As per the Federal Budget 2022, GST is now applicable on all assignment sales of new or substantially renovated housing. This marks a departure from previous assumptions where GST could be circumvented if the property was intended as a principal residence.

According to the British Columbia Real Estate Association, Section 5.18 of the BCREA Assignment of Contract of Purchase and Sale New Development standard form states that “The Assignment Amount is inclusive of any GST payable for the Assignment Agreement and the Assignor shall remit any GST payable.”  Importantly, the Assignor will be required to pay GST on the Assignment Amount (commonly called the lift).  

Impact on Assignors (seller):

For assignors, this change means that GST is now a factor in the financial calculations when selling their interest in a property. It's important to account for this additional cost in the sale price, as it can impact the overall return on investment.

Impact on Assignees (buyer):

Assignees must be prepared to pay GST on the purchase price of the assignment. This additional cost can affect affordability and should be factored into the budget when considering a presale assignment purchase.

Example:

To illustrate this, let us consider how this would work for a residential pre-sale, with an original purchase price of $500,000 and an assignment purchase price of $600,000, between a Developer (who is likely a GST registrant) and an Assignor and Buyer (who are not GST registrants). 

For the Buyer/Assignee, they would pay: 

1. Original Purchase Price: $500,000, plus 

2. GST on Purchase Price: $25,000, plus 

3. Assignment Amount (lift): $100,000  

For the Seller/Assignor, they would receive: 

1. Assignment Amount (lift/gains/profit): $100,000, less: 

1. Brokerage/Realtor Commission, as applicable; and 

2.  GST on Assignment Amount/lift and 

3.  Income Tax on Assignment Amount/lift 

The result is that the Assignor is netting less than the amount of the profit in the assignment.  

Advice for Buyers and Sellers:

Consult a Tax Expert: Given the complexities, it's wise to seek advice from a tax professional to understand the specific implications of your situation.

Budget Accordingly: Ensure that all potential costs, including GST, are accounted for in your financial planning. Consult a real estate agent with knowledge and experience in assignments.

Stay Informed: Real estate regulations can change. Staying updated on the latest laws and their implications is key to successful real estate transactions. Seek help from a real estate expert.

Conclusion:

Navigating the GST implications in presale home assignments can be challenging, but it can be a smooth process with the right knowledge and preparation. More importantly, if you are not an industry expert, consult someone who is and has connections to help you make the most informed decision. At the end of the day, the amount of money you pay your advisors, realtor, or accountant will be far less than what a mistake will cost you in a real estate transaction.