HST on Assignment Fee in Real Property
In a recent decision from the Tax Court of Canada in Casa Blanca Homes Ltd. v. The Queen, the Court was asked whether an assignor of an interest in real property was required to collect HST on the deposit component of the assignment agreement.
The taxpayer entered into 14 purchase agreements with a property developer where it acquired the right and obligation to purchase individual vacant lots at a later date. The taxpayer paid a non-refundable deposit to the developer. On closing, the deposit was to be applied against the purchase price of the lots.
Of the 14 purchases, the taxpayer assigned 12 to third-party purchasers (the “Assignments”) by way of a simple agreement that bound the purchaser to fulfil the obligations with the developer. The assignment agreement provided for two payments: 1) an assignment fee of $186,105 and 2) $634,760 in deposit recoveries. The deposit recoveries were to pay the taxpayer for its deposit with the developer.
The taxpayer collected GST on the assignment fees only and not on the deposit recoveries. The Minister reassessed the taxpayer and argued that it should have collect GST on the entire amount it received from the Assignments, including deposit recoveries.
The taxpayer’s appeal was allowed. The Tax Court of Canada concluded that the taxpayer was not required to collect GST on the deposit recoveries. GST did apply to the assignment fee.
In its reasoning, the Court held that there were two separate supplies for purposes of GST/HST. There was a supply of an interest in real property for consideration of $186,105, which was subject to GST. There was a second supply of the deposit recovery which was a “debt security” and, therefore, a financial instrument, which is an exempt supply under the Excise Tax Act. Alternatively, the Court held that even if the deposit recovery is not a financial instrument it was an interest in money, which is not a supply within the meaning of the ETA.
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