Profit from an assignment is often taxed as business income (100% taxable), not a capital gain. Since January 1, 2023, the federal residential property flipping rule treats gains on housing, including rights to buy housing like pre-construction contracts, held less than 365 days as business income unless a life-event exemption applies.
Key takeaways
- Capital gains are only partly taxable; business income is fully taxable.
- The flipping rule covers rights to acquire a home, so assignments are included.
- Holding longer than 365 days doesn’t guarantee capital-gains treatment; intention still matters.
- Life events like a death, separation, new job or new child can exempt you from the 365-day rule.
Is an assignment profit a capital gain or business income?
It depends on why you bought. If the CRA finds you bought the contract intending to resell it for profit, the gain is business income and fully taxable at your marginal rate. If you genuinely intended to live in or hold the property long-term and sold because circumstances changed, capital gains treatment may be possible. Courts look at factors like your history of flips, how you financed the purchase, and how long you held the contract.
What is the residential property flipping rule?
For dispositions on or after January 1, 2023, a gain on a housing unit located in Canada, or a right to acquire one, that you owned for less than 365 consecutive days is deemed to be business income. The principal residence exemption doesn’t apply to it. Because a pre-construction purchase agreement is a right to acquire a housing unit, assignment sales fall within the rule.
Which life events are exempt from the flipping rule?
The 365-day rule doesn’t apply if the sale was reasonably due to one of these events:
- Death of the taxpayer or a related person
- A new member joining the household (e.g. birth or adoption)
- Breakdown of a marriage or common-law partnership
- A threat to personal safety
- Serious illness or disability
- A new job or work location that requires moving (generally at least 40 km closer)
- Insolvency
- Involuntary disposition, such as expropriation or destruction of the property
Even if you’re exempt from the deeming rule, the CRA can still assess the gain as business income based on your intention.
Does HST also apply?
Usually, yes. Income tax and GST/HST are separate. Most assignments of new homes are subject to GST/HST on the amount above the deposit. See HST on assignment sales.
How do I report assignment income?
Business income is reported on your T1 return (commonly on Form T2125), while capital gains go on Schedule 3. Keep your purchase agreement, amendments, deposit receipts, assignment agreement and fee invoices, since legal and builder fees may reduce your taxable amount. Talk to an accountant before you sign the assignment, not after.
Frequently asked questions
Is profit from selling a pre-construction condo assignment taxable?
Yes. It’s usually taxed as business income, and GST/HST generally applies to the profit portion as well.
Does the 365-day flipping rule apply to assignments?
Yes. The rule covers housing units and rights to acquire them, which includes pre-construction purchase agreements.
When does the 365 days start for an assignment?
Generally from when you acquired the right, which is when you entered the agreement with the builder. Confirm your exact dates with an accountant.
Can I claim the principal residence exemption on an assignment?
Not if the flipping rule applies, and rarely otherwise, since you never lived in the home.
Buying or selling an assignment?
Browse live assignments or post yours for free on Assignment Connect.
Sources
- CRA: Residential property flipping rule
- CRA: Assignment of a purchase and sale agreement for a new house or condominium unit (GST/HST Info Sheet GI-120)
This guide is general information, not legal, tax or financial advice. Rules change and every agreement is different, so speak with a real estate lawyer, accountant or mortgage professional about your situation.