Humber/Ontario Real Estate Course 4 Exam Practice

Which action best ensures tax obligations are addressed when non-residents sell property?

1. Seller's affidavit promising tax payment post-closure

2. Remitting a purchase percentage to the national revenue

3. Obtaining a statutory declaration from the buyer

4. Credit amount towards purchase price for tax liability

5. Seller's attorney handling all capital gains tax issues

6. Withholding a portion of the sale proceeds for tax payment

The correct answer is: Credit amount towards purchase price for tax liability

The action that best ensures tax obligations are addressed when non-residents sell property is the approach that involves withholding a portion of the sale proceeds for tax payment. This method is a safeguard that directly addresses any potential tax liabilities that may arise from the sale of the property by non-residents. By withholding funds, it ensures that the necessary tax obligations can be met before the seller receives the full proceeds from the transaction. This practice helps prevent any issues related to unpaid taxes that could arise after the transaction is completed. It effectively ensures that the tax authorities are not left at risk, as funds are set aside specifically for the purpose of fulfilling these obligations. This method is often preferred because it simplifies the tax compliance process and ensures that there is a mechanism in place to cover any potential tax bill before the seller can access their funds. Other methods such as obtaining a statutory declaration from the buyer or having the seller's attorney handle capital gains tax issues do not provide the same level of security regarding tax payment, as they rely on post-sale actions rather than preemptive measures to ensure compliance.