Real Estate/Assignment Disposal

Eligibility:
Individuals who currently have or plan to engage in property investments.

Primary Residence vs. Investment Property

For Canadian tax residents, the capital gains on the sale of a primary residence are tax-exempt. However, each household can designate only one property as a primary residence per year.

Four Requirements for a Primary Residence:

The property must qualify as a house (including detached homes, semi-detached homes, townhouses, or condominiums).
The property must be used as your primary residence (evidenced by residential activities, such as mail being delivered to this address).
It must be owned by a Canadian resident (including citizens and permanent residents).
The land size is limited to 0.5 hectares (1.25 acres). Larger land may only be considered part of the primary residence if it is proven necessary for the use of the residence. For reference, 1.25 acres is approximately a square lot measuring 233 feet by 233 feet (71 meters by 71 meters).

Once you acquire a second property, it is classified as an investment property, and the capital gains from its sale are taxable:

Before June 25, 2024: 50% of the capital gains are taxable.
On or after June 25, 2024: 50% of capital gains under $250,000 are taxable, while 67% of capital gains above $250,000 are taxable.

For long-term tax planning involving multiple properties, please refer to Investment in Multiple Properties.

Pre-Construction Condo Assignments (Presale Condo Assignments)

It’s important to understand that the nature of presale condo assignments differs from other asset transactions. While most assets generate capital gains, profits from presale condo assignments with investment intent are classified as business income, meaning 100% of the profits are taxable. This indicates that the government discourages such speculative activities by imposing higher tax burdens.

Once the gains are deemed business income, presale condo assignments are also subject to sales tax (GST/HST/PST). Since these transactions are recognized as active commercial activities, the seller must remit 13% HST to the government. However, including this HST in the selling price often makes the property less competitive in the market, leading most sellers to absorb this cost within the sale price.

Example:

Jack purchased a presale condo in 2018 for $500,000 (including HST). In 2024, the market value is $700,000 (including HST).

HST on the sale price:
$700,000 ÷ 1.13 * 0.13 = $80,000
HST recoverable from the purchase price:
$500,000 ÷ 1.13 * 0.13 = $57,500
Net HST payable to the government:
$80,000 - $57,500 = $22,500

This $22,500 is solely the HST payable, excluding the personal income taxes on the profits.

Summary

Tax obligations for presale condo assignments with investment intent are notably higher due to:

Gains being classified as business income and taxed at 100%.
The imposition of a 13% HST on business income.

With extensive expertise in tax and financial planning, Shengqian Accounting Firm has successfully handled numerous property investment cases. If you have tax-related questions about property transactions, feel free to consult us for professional advice.