Act prohibiting non-Canadians from purchasing residential property comes into force in the new year
On January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act, S.C. 2022, c. 10, s. 235 (the “Act”) will come into force, which will prohibit non-Canadians from purchasing, directly or indirectly, residential property in Canada. As announced in the 2022 Federal Budget, the Act is intended to be in force for a period of two years. Earlier this year, the Government undertook a consultation process to solicit public feedback on these new rules. Although we expect that many of the rules will be refined by future regulations, it is prudent to review what we do know based on the wording of the current Act as well as the intentions of the Government as disclosed during the consultation process.
What types of properties are subject to the Act?
Most residential real properties situated in Canada are within the scope of the prohibition. Specifically, the term “residential property” under the Act means:
- A detached house or similar building containing not more than three dwelling units, and
- The part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises.
The Minister may prescribe exceptions for certain properties in future regulations. Currently, it is contemplated that an exception be introduced for recreational properties which refer to residential properties not located within a Census Metropolitan Area or Census Agglomeration. This approach is in line with the exception provided for recreational property under the Underused Housing Tax Act (the “UHTA”), in effect January 1, 2022.
The Government is also seeking feedback on a proposal to include certain vacant land as “residential property”.
Who is prohibited under the Act?
The prohibition under the Act applies to “non-Canadians”, which means:
- An individual that does not fall within one of the categories below:
- Canadian citizens;
- Permanent residents; and
- Persons registered as an Indian under the Indian Act;
- A corporation that is not incorporated under the laws of Canada or a province; and
- A private corporation incorporated under the laws of Canada or a province that is controlled by a non-Canadian person referred to above. The definition of “control” is to be set out in the regulations but the government has proposed “control” to be defined as: “(i) direct or indirect ownership of shares or interests in the corporation representing three percent or more of the value of the equity or of the voting rights; or (ii) control in fact, through ownership, agreement or otherwise”. (Note that the Government is considering expanding this category to entities other than corporations.)
The Act does contain a number of exceptions, described below:
- Temporary residents who satisfy certain conditions: the conditions required to be met in order to benefit from this exception have not yet been prescribed but the government is contemplating an exception for international students undertaking studies in Canada that are conducive to future permanent residency. The exception would only apply where the student was enrolled in a program of authorized study at a designated learning institution, would be eligible for certain work visas upon completion of the program and has filed Canadian tax returns and been physically present in Canada for 275 days or more in each of the five calendar years preceding the year of purchase, and the purchase price of the residential property must not exceed $500,000.
Another contemplated exception would be for foreign nationals working in Canada (that are on the path to settling in Canada permanently), who have filed Canadian tax returns and continuously worked for three out of the past four years in certain qualified work.
- Refugees: the Act currently provides an exception for refugees that are protected persons under Canadian immigration law. The government is also considering extending this exception for persons fleeing international crises that are not considered “protected persons” but who satisfy certain conditions.
- Diplomatic or consular purposes: the Act states that it does not preclude foreign states from purchasing residential property for diplomatic or consular purposes. The government is considering adding clarification so that an accredited person, meaning a foreign national who holds a passport that contains a valid diplomatic, consular, official or special representative acceptance, may benefit from this exception.
- Non-Canadian individuals with Canadian spouses or common-law partners: the Act currently provides an exception for non-Canadian individuals who purchase residential property in Canada with a spouse or common law partner that is not a non-Canadian.
The prohibition will not apply to a non-Canadian that enters in to an agreement of purchase and sale or assumes the obligations under an agreement of purchase and sale for residential property prior to the day on which the Act comes into force (anticipated to be January 1, 2023).
The Government may also introduce exceptions for certain acquisitions of property that arise as a result of succession on the death of an individual, divorce, transfers under the terms of trusts created prior to the Act and foreclosures of a mortgage, charge or hypothec registered prior to the coming into force of the Act.
The Government is considering deeming the acquisition of control of a corporation or other entity having an interest or real right in residential property to be a purchase for the purposes of the Act. As noted above, “control” may be defined as owning as little as three percent of the relevant entity.
If the Act is contravened, such contravention does not affect the validity of the sale of the residential property.
Consequences of non-compliance
Penalties for non-compliance under the Act, being a fine of up to $10,000, extends both to non-Canadians as well as any person or entity that knowingly counsels, induces, aids or abets a non-Canadian (or attempts to do so) to purchase any residential property, knowing that the non-Canadian is prohibited from purchasing the residential property. In the case of a corporation or other entity, anyone who directs, authorises or assents to, acquiesces in or participates in the commission of the offence of counselling, inducing, aiding or abetting is deemed to be a party to the offence. This includes an officer, director, agent, mandatary of the corporation or entity or any individual authorized to exercise managerial or supervisory functions on behalf of the corporation or entity. The rule ensures that persons acting on behalf of a corporation or other entity are not able to hide behind the corporate (or other entity) veil and can be personally penalised for transgressions that are undertaken in the name of the company.
More importantly, if a non-Canadian is convicted of contravening the prohibition on purchase under the Act, the superior court in which the residential property is located may order the residential property to be sold. The non-Canadian may not receive proceeds from a court ordered sale greater than the purchase price paid for such property by the non-Canadian. The details of the court-ordered sale process are to be set out in the regulations.
For more information or assistance with this matter, please do not hesitate to contact any member of our Tax and Estate practice or our Real Estate practice.