Canada Revenue Agency - Pre- Construction Assignments
What is an Assignment?
An assignment means that one is purchasing the 'right' to own a condominium not yet in the Land Registry System. Typically the condo has not been built yet or is not ready for you to move in and the building hasn't been registered. In actual fact the 'right ' is just a paper agreement and not the transfer of the property. The Assginment closes before the condo is registered. After purchasing the 'right', the buyer will at some point in time close and register their ownership of the condominium at a later date.
Assignments have increased with heightened condo sales. With increased sales CRA auditors seem to be targeting the Toronto and Vancouver Real Estate markets in search of buyers who purchased condos before they were built, possibly with the intention of flipping the unit for profit when the project is done.
There are some buyers whose circumstances have changed while waiting for the closing of their property. They have had to sell their new condo and are now suffering with huge tax bills that usually apply to Real Estate venturers.
One Toronto tax lawyer, William House, cautions realtors in a two page bulletin that has been passed on to brokerages, that they too could get caught up in this CRA ploy. He advises agents to be careful on the advice they offer to clients. If you have told a client to sell their condo or new home too quickly after completion of construction, even if it is to use the gains to buy up, clients could come back and sue for advice that is in dispute with the CRA. The Toronto Real Estate Board refused to discuss the matter stating only that the rules are "generally clear on the amount of time one has to occupy a unit ( as a principal residence ) to benefit from a capital gains exemption."
In actual fact, there is not a certain time frame specified by the law. The CRA seems to primarily focus on those who sell their new home or condo less than a year of taking possession. Some tax lawyers are advising their clients that they could be subject to a tax bill of at least 50% of any gains made if they sell before living in their residence for less than 2 months to two years.