I hope you are well.
As of May 17, 2022,all Assignments will be subject to HST and extra care is required when drafting Assignment Agreements.I am pleased to enclose our latest issue of Title Tips which goes over what you need to know about this. I hope you find this helpful. If so, I would ask that you forward this to other Agents and Brokers or anyone who you think may find it of interest. Thank you!
Title TipsTM *
2022 Budget makes all Assignment Agreements (flips) made after May 7, 2022 subject to HST!
ALL ASSIGNMENTS NOW SUBJECT TO HST
We complete many Assignment transactions and this is perhaps one of the biggest changes we have seen yet. Before the 2022 budget, whether or not HST applied to an Assignment transaction, a flip, depended on the intention of the original buyer at the time that the purchase was made. The 2022 budget changes that. Now, all assignments of New Home Contracts signed after May 7, 2022 are subject to HST.
*The intention of the original purchaser does not matter. Whether the intention was to purchase for personal use or to flip does not matter. The assignment will be subject to HST.
* The date the original agreement of purchase and sale was entered into does not matter– the tax applies even to New Home Contracts dated before May 7, 2022.
* Whether it is a condominium or freehold property does not matter -the tax applies to all New Home Contracts.
HST APPLIES TO ALL PROFITS – HST ON ORIGINAL DEPOSITS MAY BE EXEMPT IF AGREEMENT IS DRAFTED PROPERLY
In the past it has not been clear whether the HST was applicable to just the profit or the profit plus original deposits paid by the original purchaser. For example, if the purchaser paid $100,000 in deposits and made a profit of $200,000 it was not clear whether the HST would apply to a figure of just the $200,000 profit ($26,000 HST) or a figure of $300,000 ( $39,000 HST), being the total of the profits plus the original $100,000 dollars deposits paid by the original buyer. Now, HST will be applicable just to profits but only if the Assignment Agreement states in writing that part of the “Assignment Price” is attributable to the reimbursement of a deposit under the original purchase agreement.
Our Recommended Clause would read something like the following:
The Assignor and Assignee agree that the Assignment Price herein includes reimbursements to the Assignor of Deposits in the amount of $XXXXXX paid under the original Agreement of Purchase and Sale with the builder/seller in the Agreement being assigned herein.
“INCLUDED IN” vs “IN ADDITION TO”
It is also critical to ensure HST is “Included In”, not “In Addition To” the purchase price under the Assignment Agreement of Purchase and Sale. Be careful to make sure that paragraph 6 of the OREA Assignment Agreement (forms 145 and 150) reads “INCLUDED IN” as below. It should not read “In Addition To”. The Assignor can not certify that the transaction is HST exempt and the Assignor typically pays the HST. If it reads “In Addition To” it will make the Assignment Price exclusive of HST and the Assignee responsible for paying the HST on the Assignment Price.
6. HST: If the sale of the Property (Real Property as described above) is subject to Harmonized Sales Tax (HST), then such tax shall be “INCLUDED IN” the Purchase Price. If the sale of the Property is not subject to HST, Assignor agrees to certify on or before (included in/in addition to) closing, that the sale of the Property is not subject to HST. Any HST on chattels, if applicable, is not included in the Purchase Price.
If you are at all unsure about how to word the Agreement make it conditional on lawyer’s review so that this can be properly addressed and you or your client avoid expensive surprises.
Enjoy the summer!
We also remind you of the upcoming holidays to avoid for closings:
May 23 -Victoria Day (Monday)
July 1 – Canada Day (Friday)
August 1 – Civic Holiday (Monday)
September 5 – Labour Day (Monday)
**NEW** September 30 – National Day for Truth and Reconciliation (Friday)
Please also remember to avoid mid month and month-end closings if you can, especially during the busy summer months.
Our firm focuses on Real Estate. We have been working with agents and brokers for over 25 years and have developed an efficient and responsive Real Estate practice. We also offer fixed purchase closing costs of $999.00* for all Fees & Disbursements, plus Title Insurance. *Plus H.S.T. For details, or with any questions, please feel free to call JohnZinati at 416-321-8766, email at firstname.lastname@example.org or visit us at www.zinatikay.com.
John Zinati, B.A., L.L.B.
Barristers & Solicitors
100 Cowdray Court, Suite 320,
Toronto, Ontario, Canada M1S 5C8
Tel: 416 321 8766 Fax: 416 321 8267 Conveniently at Kennedy Road & the 401
& @ Cityplace near Skydome
www.zinatikay.com Fixed Closing Costs – $999