Like it or not, in the next few years condominium assignments will become more commonplace than the Raptors championship gear seen on the streets of Toronto. Despite this incredible ubiquity it shocks me just how unfamiliar the average individual is with the process of assigning a property. You may understand what an assignment is, and the concept of it, but you are missing some key points that are worth discussing.
What are the most common reasons an individual would want to assign a property? The answer is to 1. Avoid closing on the unit, paying the closing costs because he/she is cash strapped/wants to make a quick profit 2. Inability to qualify for a mortgage after the introduction of the stress test. Latter being the most commonplace in today’s market.
I am here to tell you that there is a 3rdscenario that you have not considered and it is becoming increasingly common & misunderstood.
Let’s envision a case where a young man, first-time buyer, by the name of Andy decides to purchase a new condo. He enters in an APS with a developer and his mortgage broker advises him that he will not qualify for a mortgage and needs to add someone else to the application. This is understandable as people nowadays need all the help they can get in order to boost their income and improve their lending ratios. Who this “someone else” is going to be is very important. Should Andy add immediate family to his APS (mom/dad/sister/brother) and wish to only have his name on title at closing, this will be considered an ASSIGNMENT TO FAMILY. An assignment to family is either free of charge or costs about $500. It is quite straightforward and will allow for Andy’s name to be registered on title only and have his mom/dad/sister/brother removed. Hopefully by this stage Andy has gotten a number of raises at his work.
It is the second scenario where things get tricky. Should Andy decide to add his best friend, cousin or girlfriend to the agreement, at the time of closing removing a name from the APS will be done by regular ASSIGNMENT. This seemingly simple manipulation can either be free or cost up to $5,000-$10,000 plus legal fees. In addition, once assignment is completed Andy will be required to pay the HST Rebate ($24,000-$27,000) to the builder despite the fact that he is a first-time buyer, end user, and intends to occupy the home. This is a CRA requirement.
As a matter of fact, in any completed assignment the ASSIGNEE is liable to pay HST.Of course the rebate will be provided shortly thereafter but these funds must be at the disposal of the assignee at the time of closing.
Lack of awareness on the above can be quite devastating come closing time. As you can probably imagine by now, the exact same consequences can befall any two or more buyers that enter into a builder Agreement that are not related.
Lastly, it is also worth noting that any profits realized from the sale of an assignment are taxed as capital gain at 50%.