Real Estate Litigation Articles

Budget ’22 may rattle the resale of pre-built condos

By Bob Aaron
Toronto Star contributing columnist.

Property speculation is targeted in the recent federal budget and has the potential to cause upheaval, writes Bob Aaron.

The 2022 federal budget has the potential to create a huge upheaval in the market for pre-construction condominiums.

The government plans to reduce what it calls speculative trading in the Canadian housing market. Its target is the resale of purchase contracts signed before the home or condo has been built or occupied.

Currently, when a person makes a new home assignment sale, Harmonized Sales Tax may or may not apply — depending on the reason for purchasing the home. For example, HST does not apply if the buyer initially intended to live in the home.

This creates an opportunity for speculators to be dishonest about their original intentions, and uncertainty for everyone involved in an assignment sale as to whether HST applies.

The existing rules also result in the uneven application of HST to the final price of new units.

To address these issues, Budget 2022 will make all assignment sales of newly constructed or substantially renovated residential housing taxable for HST purposes, effective May 7, 2022.

HST applies to the price from the builder to the first buyer, and an additional 13 per cent tax will be imposed on the entire price paid by the second buyer to the original buyer.

Effectively, every assignment sale closing on or after May 7 will be subject to tax of up to 26 per cent.

The tax will be paid by the original buyer from the builder who “flipped” the agreement to an end user.

In order for the first buyer to just break even, the home or condo has to increase in value by the 13 per cent HST, five per cent real estate commission, and any charge by the builder to consent to the assignment.

This means that for all new or existing assignment sales closing on or after May 7, the first 18 per cent of the new price will go to HST and real estate commission, even if the seller winds up in the red.

Will this kill the market for assignment sales?

John Pasalis is the broker of record at Realosophy Realty Inc. and a frequent industry spokesperson. He emailed me to say, “If the federal government is able to police this and condo investors have to start giving up 13 per cent of their capital gain to the federal government in the form of HST… this is not good for investors who intend to flip their condos.”

Jose Manalo is a broker with Sutton Group Realty Systems, in Mississauga. He spends much of his time on assignment sales.

I asked him about the impact of the budget on assignment sales. He responded: “Will it curb the resale prices in the future? I would say no! The 13 per cent HST plus the five per cent in commission will just be added into the investor’s selling price. Some investors will grovel for a bit in the start, but later it will just be a normal added cost.”

My own take is that the assignment market could well come to a screeching halt next week, but once it adjusts to the new taxes, it could revive after some time passes.

Bob Aaron is a Toronto real estate lawyer. He is Certified by the Law Society of Ontario as a Specialist in Real Estate Law.

He can be reached by email at, phone 416-364-9366. Visit his website