Tax Effects of Assignment Sale In Real Estate

Hi Guys:
I only did few returns couple years ago with assignment sales. And always did that under schedule 3 because clients always said it’s personal use, not for profit. And while I did consider the GST implication, didn’t really put too much attention to it as I was always told it’s been taken care of with the lawyer.

Now, looking at this CRA compliance on tax effects on real estate, I don’t think it’s possible for anyone with assignment sale to get away from taxes. And I don’t think they can even claim it as capital gain most the time.

With that though, if assignment sale profit can not be recorded on S3 now, but instead, must be reported as business income. Would you complete the T2125 for this or just report the gain on Line 13500 if there is no other business income?

Also, with GST, the CRA bulletin is stating, GST will apply on gain, plus the refundable deposit, originally, GST should not be an issue, because there is no ITC anyways for personal use or rental, but now that’s it’s being considered as business income, that may become a concern for some.

Assignment sales are business income by their very nature. Report on T2125 using the cost of goods sold section to report the cost (if any) of the asset being assigned.

I would also consider going back to the client(s) you did the S3 returns on and suggest they report correctly. This is exactly what the government is looking for in the real estate games going on (and why we now have so much more regulation and reporting surrounding real estate)

Well, I would love to see CRA makes it clear, but as always, it’s leaving room for interpretation and that’s when most people always find way to benefit. Lucky I don’t do too much personal taxes.

In this case, GST/HST Info Sheet GI-120 which CRA mainly used for GST purpose, had an example where assignment sale is not considered an adventure of business, thus, no GST is applicable.
IT-218R, couple other IT bulletins, also leaving room for same interpretation.

When I did the first one couple years ago, I even called CRA and was told it’s reported on S3, of course depending on situation.

So, when I saw the compliance bulletin, I thought it’s great, I would just show it without having to explain all the situation and rules.