CRA explains the implications of the new GST/HST treatment of home purchase flips

Para. (d) of the ETA definition of “builder” generally has the effect of exempting an assignment of an agreement to purchase a home from the builder where the assignor was acquiring the home for personal use, and para. (f) effectively provides a further exemption regarding such an assignment where the assignor is an individual who is not engaged in an adventure in the nature of trade or a business – whereas ETA draft s. 192.1 will eliminate this exemption. Comments of CRA on the effects of this new rule include:

• Under the new rule, where the (post-May 22, 2022) assignment agreement indicates that a part of the consideration is attributable to the reimbursement of a deposit paid by the assignor to the builder under the subject purchase and sale agreement, that deposit amount is excluded from the taxable amount of the assignment – whereas under the old regime, if the assignment was taxable, the total consideration for the assignment - including any portion referable to the assignment of the deposit - was taxable.
• Given that the amount of the new housing rebate is based on the total consideration for the taxable supply of the house, including any consideration paid by an assignee for a taxable assignment sale of an agreement to purchase the house from the builder (but excluding the amount attributable to a deposit assignment), the new rule will affect the Ontario or federal new housing rebate amounts.
• As only one new housing rebate application can be made for each new house, and the builder (“Builder A”) does not receive the consideration for the assignment of the purchase contract to the assignee:

[T]he assignee purchaser may want to file their new housing rebate application directly with the CRA rather than through Builder A. In this way, the assignee purchaser can include in the new housing rebate application the tax paid to Builder A and the tax paid to the assignor in determining the amount of their GST/HST new housing rebate and, where applicable, a provincial new housing rebate.

Neal Armstrong. Summaries of GST/HST Notice 323, Proposed GST/HST Treatment of Assignment Sales, May 2022 under ETA s. 123(1) – builder – (d), s. 254(1) - single unit residential complex, s. 254(2)(i), s. 254(4), s. 256.2(3) and s. 192.1.