Humber/Ontario Real Estate Course 3 Exam Practice

A non-resident seller’s significant capital gain tax can be handled best by:

1. Buyer withholding necessary tax amount

2. Crediting a tax refund account

3. Handling obligations post-transaction

4. Including assurances in transaction documents

5. Obtaining residency details post-sale

6. Trusting seller’s future tax commitments

The correct answer is: Buyer withholding necessary tax amount

The most effective way to manage a non-resident seller's significant capital gain tax is for the buyer to withhold the necessary tax amount at the time of the transaction. This approach is appropriate because Canadian tax law requires the buyer to withhold a portion of the purchase price to cover the anticipated capital gains tax liability associated with the sale of property by a non-resident seller. By doing so, the buyer ensures that the tax obligation is addressed upfront, reducing the risk of outstanding tax issues arising after the transaction is completed. This method benefits both parties by providing compliance with tax regulations and safeguarding against potential financial liabilities. The other options may not adequately address the immediacy and legal requirements involved in handling taxes related to the sale. Specifically, post-transaction handling of obligations can lead to complications and delays in tax payment. Crediting a tax refund account does not directly solve the withholding issue, while assurances in transaction documents might not offer the protection needed during the sale. Obtaining residency details after the sale may come too late to mitigate tax repercussions, and relying on the seller's future tax commitments introduces uncertainty into the process. Therefore, withholding the necessary tax amount is the most reliable choice for ensuring tax compliance.