Humber/Ontario Real Estate Course 2 Exam Practice

Which of these statements accurately describes capital gains tax?

1. It only applies to commercial properties.

2. It is always paid by the buyer.

3. It can be deferred by purchasing another property within a specified time frame.

4. It applies to the profit made on the sale of an investment property.

5. It is the same as property tax.

6. It must be paid annually.

The correct answer is: It applies to the profit made on the sale of an investment property.

Capital gains tax applies to the profit made on the sale of an investment property. When an individual sells an investment property for more than they originally paid for it, they have made a capital gain. The capital gains tax is due on this gain, and it is important for real estate investors to factor this into their financial planning when selling properties. The other options are inaccurate: A. Capital gains tax is not exclusive to commercial properties; it also applies to residential properties and other forms of investments. B. The payment of capital gains tax is not solely the responsibility of the buyer; it is typically the seller who is responsible for paying this tax. C. While there are options to defer capital gains tax by purchasing another property (like a 1031 exchange in the United States), it is not always the case in every jurisdiction. E. Property tax is a separate tax that is based on the assessed value of a property and is paid periodically to the local government. F. Capital gains tax is due when a capital gain is realized upon the sale of an investment property, not on an annual basis.