On January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) and its accompanying regulations (the “Regulations”) came into force, prohibiting non-Canadians from directly or indirectly purchasing residential property in Canada for a period of 2 years.
The primary aim of the Act is to address rising real estate prices in Canada and help create more accessible housing for Canadians. Given the broad scope of the penalty provisions in the Act, those involved in the purchase and sale of residential properties should familiarize themselves with the Act to ensure that they are in compliance with the legislation.
Who does the Act apply to?
The Act prohibits non-Canadians from purchasing, directly or indirectly, any residential property.[1] A “Non-Canadian” is defined to include the following:
- An individual who is neither a Canadian citizen, person registered as Indian under the Indian Act, nor a permanent resident;
- A corporation that is not incorporated under the laws of Canada or a province;
- A corporation that is incorporated under the laws of Canada or a province whose shares are not listed on a Canadian stock exchange and that is controlled by a person that is a non-Canadian; and
- A prescribed person or entity.[2]
The Regulations define “prescribed entities” as those formed otherwise than under the laws of Canada or a province, or those formed under the laws of Canada or a province whose shares are not listed on a Canadian stock exchange and that are controlled by a foreign entity or person.[3]
The Regulations set out certain threshold requirements for foreign “control”.[4]
Who is exempt from the Act?
The Act and Regulations provide limited exemptions for persons and entities that would otherwise be affected by the prohibition, if they satisfy certain conditions. These include temporary residents, protected persons, non-Canadian individuals who jointly acquire property with a spouse or common-law partner that is eligible to purchase residential property, and other persons or entities as prescribed by the Regulations.[5]
What types of residential properties are affected by the prohibition?
The Act defines “residential property” as any real property or immovable that is situated in Canada and that is (a) a detached house or similar building containing not more than three dwelling units; or (b) a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises that is, or is intended to be, a separate parcel or other division of real property or immovable.[6]
The Regulations further limit the application of the Act to residential properties that are located either within a census agglomeration (“CA”) or a census metropolitan (“CM”)[7], as identified in Statistics Canada’s Standard Geographical Classification 2021. CAs and CMs are formed by one or more adjacent municipalities centred on a population centre, known as a core. CAs have a core population of at least 10,000 and CMs have a total population of at least 100,000, of which 50,000 or more must live in the core.
What is a “purchase” under the Act?
The Regulations define a “purchase” to include a legal or equitable interest in a residential property.[8] This does not encompass acquisitions resulting from death, divorce, separation or a gift; tenant rentals; transfers under the terms of a trust created prior to the Act coming into force; the transfer of a security interest; or the acquisition by a non-Canadian of residential property for development purposes.[9]
Contraventions of the Act
The Act carries with it substantial legal implications. Every non-Canadian that contravenes the Act and every person or entity that counsels, induces, aids or abets or attempts to counsel, induce, aid or abet a non-Canadian in a contravention of the Act, is guilty of an offense and liable on summary conviction of a fine of up to $10,000.00.[10] Further, courts possess the authority to order the sale of the residential property.[11]
Practical Implications
Given the broad scope of the Act and the consequences for contraventions, anyone involved in the purchase and sale of residential real estate should familiarize themselves with the legislation and take precautions to ensure their compliance. The penalties involved apply not only to buyers and sellers, but professionals, including realtors, developers, and lawyers, as well. Reasonable inquiries should be made to confirm that purchasers are not considered “non-Canadian” under the Act, and professionals may want to include specific representations or warranties to protect themselves from liability.
[1] Prohibition on the Purchase of Residential Property by Non-Canadians Act at section 4(1).
[2] Ibid at section 2.
[3] Prohibition on the Purchase of Residential Property by Non-Canadians Regulations at section 2.
[4] Ibid at section 1.
[5] Supra note 1 at sections 4(2)(a)-(d), (3).
[6] Ibid at Section 2.
[7] Supra note 3 at section 3(1).
[8] Ibid at section 4(1).
[9] Ibid at section 4(2)(a)-(e).
[10] Supra note 1 at section 6(1).
[11] Ibid at section 7(1).
The author would like to thank Harinder Singh, Summer Student-at-Law, for his assistance with this blog.