An investor purchases a pre-construction condominium for $500,000 and assigns the contract to another buyer for $600,000 before closing. What are the tax implications for the original investor?
Correct Answer
B) The $100,000 gain is treated as business income and fully taxable
Assignment gains are typically treated as business income by the Canada Revenue Agency, especially for pre-construction properties, making the full $100,000 gain taxable at the investor's marginal tax rate. This is considered trading in real estate rather than capital investment.
Why This Is the Correct Answer
Option B is correct because the CRA typically treats assignment gains as business income, not capital gains. When an investor purchases pre-construction property with the apparent intention to assign before closing, this demonstrates trading activity rather than investment. The $100,000 gain would be fully taxable as business income at the investor's marginal tax rate. This aligns with CRA's position that assignment transactions, particularly in pre-construction developments, constitute business activity due to the speculative nature and short holding period.
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