Tax Implications Assignment Sales Canada Watch Video

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1. I lost the entire deposit and more, would that be considered a capital loss if the property was intended as an investment and not for personal use?

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   1. Hi Rick,

      Potentially yes, but it depends on the facts.

      If the property was truly acquired as an investment on capital account, a forfeited deposit can often be treated as a capital loss. CRA’s audit manual notes that when a purchaser forfeits a deposit, the tax treatment depends on the nature of the rights under the contract, and if the property would have been a capital asset to the purchaser, those rights are generally capital in nature. Ordinary capital losses can generally only be used against taxable capital gains.

      That said, with pre-construction and assignment situations, CRA may argue the transaction was on income account if there was a profit-making intention, frequent similar transactions, or other indicia of flipping. In that case, the treatment could differ and the loss may not automatically be a capital loss. Also, the GST/HST side can be separate from the income tax analysis.

      Key factors would include:

      • whether this was a one-off investment or part of a pattern of similar deals
      • what your intention was when you signed
      • whether financing, resale efforts, or assignment activity point to trading
      • whether the deposit was simply forfeited, versus an actual assignment or resale at a loss

      If you’d like, we can review the agreement and facts to determine the correct treatment.

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