Tax Guide for Assignment Sales in Quebec: GST/QST Rules, Capital Gains vs Business Income, and CRA Audit Risks — CPA Firm Near You, Montreal

Introduction

Assignment sales — selling the rights to a pre-construction condo or new property before closing — have become extremely popular in Quebec, especially in Montreal’s fast-growing condo market. But assignment transactions are one of the most aggressively audited areas by CRA and Revenu Québec because sellers often report them incorrectly. This guide explains how assignment fees are taxed, when GST/QST applies, how to determine capital gains vs business income, and how a CPA firm near you in Montreal can protect you from reassessments.

Legal and Regulatory Framework

Under the Income Tax Act and the Taxation Act of Quebec, assignment sales can be treated as capital gains (50 percent taxable) or business income (100 percent taxable), depending on the intention and pattern of activity of the seller. GST and QST generally apply to assignments involving new residential properties or pre-construction condos, especially when the assignor initially signed a contract for a taxable property. The assignment fee, profit, and sometimes even the reimbursed deposits may be subject to sales tax. Deductible expenses may include legal fees, interest, condo assignment fees, realtor commissions, advertising, and financing costs. CRA and Revenu Québec require detailed documentation including the original purchase agreement, assignment contract, deposit receipts, and correspondence with developers.

Key Court Decisions

Courts have repeatedly ruled that assignment profits are often business income rather than capital gains, especially when buyers never intended to live in the unit. Judges have emphasized that intention at the time of purchase, number of transactions, and promotional behaviour determine tax treatment. Several rulings confirmed that GST/QST must be charged and remitted on the assignment fee, even when the seller was unaware. Courts also denied deductions when assignors lacked proper receipts for legal fees or attempted to deduct personal costs.

Why CRA and Revenu Québec Target Assignment Sellers

Assignment sales are one of the highest-risk sectors for audits because of:
• Frequent misclassification as capital gains
• Failure to charge or remit GST/QST
• Unreported assignment fees
• Incorrect treatment of reimbursed deposits
• Cash transactions between assignor and assignee
• Rapid buying and selling behaviour

Auditors cross-check land registry records, developer statements, GST/QST rebate claims, bank deposits, and MLS listings to detect inconsistencies.

Mackisen Strategy

At Mackisen CPA Montreal, we help assignment sellers determine the correct tax treatment from the beginning. We analyze intention, frequency of transactions, and condo-purchase patterns to determine whether the assignment should be treated as business income or capital gain. We calculate GST/QST obligations, reconcile deposits, and prepare supporting documentation for assignment fees. Our team ensures that deductions such as legal fees, commissions, and interest are fully supported. If audited, we defend your classification, reconstruct paperwork, and negotiate reduced reassessments.

Real Client Experience

A Montreal investor assigned three pre-construction condos and reported all profits as capital gains. CRA reclassified the income as business income and demanded GST/QST on the assignment fees. We reviewed all contracts, reconstructed timelines, calculated proper sales-tax treatment, and negotiated a reduced penalty. In another case, an assignor failed to keep deposit receipts; we rebuilt documentation using developer statements and rescued allowable deductions.

Common Questions

Are assignment profits taxable?

Yes. They are taxable either as capital gains or business income depending on the intention and frequency of activity.

Do assignment sales require GST/QST?

Yes, most assignments involving new or pre-construction properties trigger GST/QST on the assignment fee.

Are reimbursed deposits taxable?

Sometimes. Portions related to value increases or profit may be taxable.

What expenses can assignment sellers deduct?

Legal fees, interest, commissions, and certain carrying costs with full documentation.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps assignment sellers stay compliant while maximizing net returns. Whether you’re assigning one unit or multiple contracts, our expert team ensures precision, transparency, and full audit protection.