Humber/Ontario Real Estate Course 4 Exam Practice

What key financial responsibility does a buyer have when purchasing property from a non-resident seller under the Income Tax Act?

1. File a non-residence declaration

2. Pay any unpaid property taxes immediately

3. Ensure tax liabilities are settled by the seller

4. Withhold part of the purchase price

5. Declare and pay income tax from the sale

6. File for an income tax waiver

The correct answer is: Ensure tax liabilities are settled by the seller

The correct answer highlights the critical responsibility a buyer has when engaging in a transaction with a non-resident seller under the Income Tax Act. Specifically, the buyer is required to withhold a portion of the purchase price to ensure that any potential tax liabilities incurred by the non-resident seller are adequately addressed. This measure is primarily designed to protect the buyer from being held responsible for any unpaid taxes that the seller may owe to the Canadian government. In transactions involving non-resident sellers, there is a risk that the seller may not have settled their tax obligations. Therefore, by withholding a portion of the sale proceeds, buyers assist in ensuring that the seller's tax liabilities are addressed before the full amount is transferred to them. If the seller does not have any outstanding tax liabilities, the withheld amount can subsequently be released after the appropriate tax clearance has been obtained. The other choices reflect various responsibilities or declarations, but they do not accurately capture the primary obligation of the buyer to withhold funds as a protective measure related to tax liabilities. Filing declarations or waivers pertains to administrative procedures rather than directly addressing the buyer's financial responsibility in the transaction with a non-resident seller.