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By CondoWong Saturday August 03, 2019

You bought a pre-construction unit 3 years ago...

You want to flip it and make $200,000?

Sure, that's pretty easy for me. But make sure you watch this video before you do so.

Remember, it's not about how much money you make, but how much money you keep.


I can easily sell your unit for $200,000 more, but how much of it would end up in your pocket?

Most people don’t know about the 2 killer tax implications from assignment sales.

What does it mean by flipping a unit? The formal term is called an assignment sale.

When you buy a pre-construction unit from a developer, you are actually just buying the rights and obligations of the Agreement of Purchase and Sale.

There’s no actual ownership of the property until the final closing.

So when people say “flip it” or “assign it”, it means sell before you close.

You’re simply selling your rights and obligations of the purchase agreement. There’s no ownership transfer.

What about a resale transaction then? To classify as a resale transaction, you must be the registered owner of the property.

When you sell the unit to someone else, you are transferring the ownership to this new buyer.

Let’s get to Killer #1.

When you go shopping and buy some new stuff, a pair of new shoes, a new iPhone… What tax do you pay on top of the price?

That’s right. A 13% HST.

An assignment sale is just like a new iPhone sale, you have to pay 13% HST.

Let’s say you bought a pre-construction unit at $500,000 and you’ve put down 20% deposit, that’s $100,000 to the developer.

Now you assign it for $700,000, that’s a $200,000 profit. You have to pay 13% HST on the deposit and the profit. That’s $39,000.

You as the seller or assignor would be responsible for remitting this $39,000 of HST to the CRA. Just like how Apple Store would be remitting the HST collected from you to the CRA.

For an assignment sale, HST is typically included in the assignment price to keep the price negotiation simple.

The HST is essentially transparent to the buyer. But you must be aware of your obligation to remit this HST. I don’t think you want a killer surprise from the CRA.

What about a resale transaction? That’s like buying and selling 2nd hand stuff, no need to worry about HST. Resale transactions are exempt from HST.

Killer #2

The money you make from an assignment sale is considered a “business income”. That means it is 100% taxable.

For a $200,000 income, the marginal tax rate is at around 40%. That means $80,000 goes to income tax.

You see, you think you made $200,000, but actually more than half of it goes to the CRA.

If it’s a 2nd hand resale, the money you made is considered a “capital gain”. That means it is only 50% taxable.

Let’s quickly recap.

For an assignment, ...



So you see, if you think you can make some good easy money from an assignment sale… BAD IDEA

You should only consider an assignment sale if you need an exit plan. For example, you cannot get a mortgage to close the property, you need your deposit money back for something else.

If you buy because you want to flip, then you shouldn’t buy in the first place.

You need to buy and hold real estate. Real estate and rental income is just like chicken and egg. Don’t kill your chickens, let them produce eggs for you.

If you need advice on assigning your unit, you can schedule a call with me.

Make sure you SUBSCRIBE to my YouTube channel so you won’t miss my upcoming videos.

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