Humber/Ontario Real Estate Course 1 Exam Practice

What liability does a buyer have regarding taxes when purchasing Canadian real estate from a non-resident seller?

1. The buyer has no liability in that regard.

2. The buyer can sign a non-residency declaration on behalf of the seller.

3. The Income Tax Act imposes a tax liability on the buyer for taxes owed by a non-resident seller of Canadian real estate if the seller fails to pay such taxes.

4. No tax is payable by non-residents for capital gains realized on the sale of Canadian property.

5. The seller's tax liability transfers to the new buyer automatically.

6. The buyer can claim back any taxes later from the government.

The correct answer is: The Income Tax Act imposes a tax liability on the buyer for taxes owed by a non-resident seller of Canadian real estate if the seller fails to pay such taxes.

The correct choice reflects that under the Income Tax Act, there is a specific tax liability that falls on the buyer when purchasing real estate from a non-resident seller. This provision ensures that the taxes that may be owed by the non-resident seller do not go unpaid, which could otherwise lead to a loss of government revenue. When a non-resident sells Canadian real estate, there is usually a capital gains tax owing on the sale. If the seller neglects to pay that tax, the legislation allows the authorities to hold the buyer responsible for ensuring that the taxes owed are settled. This liability does not indicate that the buyer absorbs the seller's debt outright. Instead, it puts a framework in place that urges buyers to verify that any tax obligations are taken care of before proceeding with the transaction. Buyers are typically advised to require the seller to provide a clearance certificate from the Canada Revenue Agency to confirm that all taxes associated with the property have been addressed. In the context of the other options, while some may present these ideas in different forms, they do not capture the essence of the tax liability that exists under the Income Tax Act relevant to this scenario.