The paper includes a discussion of the assignment of a condominium purchase contract:
Equitable interest of purchaser (p.2)
Under general legal principles, once a vendor enters into an agreement for the sale of real property, the purchaser has acquired an equitable interest in the property. The purchaser is entitled to register the contract of purchase and sale against the property, and similarly, can sue the vendor for specific performance of the contract if the vendor refuses to complete the sale. ...
Disclaimer of equitable interest (p. 2)
The equitable interest that normally arises on the signing of a purchase agreement, however, is subject to the laws of contract. By contract, the vendor and purchaser may disclaim the transfer of the equitable interest that the purchaser would otherwise have in the land. Indeed, this is a common practice in many new condominium developments. An equitable interest gives a purchaser the ability to register the interest on title. In the case of a condominium building under development, financing and other commercial arrangements could be confounded by the potential registration of interests by hundreds of buyers. For this reason, in many new developments the parties contract out of the general law and disclaim any interest in real property... .If the contract contains a valid and binding disclaimer of interest in realty, what is assigned therefore is better characterized as a bundle of contractual rights, i.e. an intangible.
The paper includes a discussion of the assignment of a condominium purchase contract:
Scenario for reimbursement of deposit (p. 3)
Where the purchase contract is assigned, the original purchaser will want his or her deposit returned. Similarly, the vendor will require that there by no gaps in its security. The common and convenient route therefore is for the vendor to retain the deposit and but agree that it is now held for the benefit of the assignee. Thus the assignee may be required to reimburse the original purchaser for an amount equal to the deposit.
Example/CRA position (pp. 3-4)
According to the CRA, the payment to the original purchaser to replace the deposit is also taxable.. With respect, this position is surprising and open to dispute. Suppose for example, that a purchaser entered into a speculative purchase contract for a high-end Vancouver condominium in late 2009 at a price of $2 million. The purchaser was required to provide a deposit of $700,000. Given the rapid rise in market values, it is expected that the property will be worth at least $3 million when the transaction closes in 2012. The purchaser has found an assignee who will pay a fee of $1 million for the assignment of the contract. The assignee will occupy the unit as a place of residence on completion. The vendor has consented to the assignment and has agreed to hold the deposit for the benefit of the assignee. The assignee pays the purchaser an assignment fee of $1 million and also replaces the purchaser's deposit of $700,000. The assignee therefore pays a total of $1.7 million to the purchaser. The question then is whether HST should be collected on the assignment fee of $1 million or on the total of the $1 million assignment fee and the $700,000 replacement deposit, i.e. 12% HST of $120,000 versus $204,000. According to the CRA the tax is on everything - i.e. on $1.7 million.
Single v. multiple supply/deposit as money (p. 4)
But the problem is that on closing, the assignee must pay HST to the vendor on the original contractual purchase price of $2 million. The purchase price is satisfied by a cheque for $1.3 million from the assignee and the release of the $700,000 deposit. The result is that the assignee is taxed twice on the deposit, once when the assignee pays the $700,000 replacement deposit to the purchaser, and a second time at closing when the vendor applies the deposit (which belongs to the assignee) as consideration for the purchase and collects the HST due on the full contract price. The assignee cannot recover the "double" tax. [T]here are reasons why the conclusion based on single v. multiple supply analysis is not appropriate here. First, there is a question as to whether the deposit and the assignment of the contract are inextricably linked. It would be entirely possible, for example, for the assignee to pay a new deposit to the vendor who would then release the original deposit to the purchaser. Thus the assignee is not destined to make a replacement deposit payment to the purchaser. The opportunity to structure the transfer of the contract in this manner suggests that the link between assignment of the contract and the transfer of the entitlement to the deposit is not inextricable. Further, the single v. multiple supply analysis rests on the assumption that two or more properties or services are being supplied together. An investigation is required because, if provided separately, the supplies would not bear the same GST/HST status. A supply, however, is defined to mean "the provision of property or a service in any manner". The definitions of property and services each exclude money. Thus the provision of money is not a supply under the ETA. Consequently, it is questionable whether the analysis has been correctly applied to result in a sum of money being merged with a supply of property to form a single supply.
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