As a result of concerns that foreign investment in Canadian real estate was making homes less affordable for average Canadians, the Federal government responded by passing The Prohibition on the Purchase of Residential Property by Non-Canadians Act. Also, Regulations for the Act were passed on December 21, 2022. Together, the Act and Regulations came into force on January 1, 2023, and will be automatically repealed after two years. Non-Canadians and corporations controlled by Non-Canadians will be prevented from purchasing “residential” property in Canada during this two year period.
The constitutionality of the Act may be a subject of debate, since pursuant to section 92 of the Constitution Act, 1867, property rights are within provincial jurisdiction. As each province has its own laws, systems and processes, there will not be consistency across the country. For example, in Alberta we have the Agricultural and Recreational Land Ownership Act and Foreign Ownership of Land Regulations, that control the acquisition or prime agricultural and recreational land by non-Canadians. In BC the government launched an additional property transfer tax (Additional PTT of 20%) to non-resident buyers in August 2016.
Who Is A Non-Canadian?
- Individuals – people who are not Canadian citizens, permanent residents, or persons registered under the Indian Act.
- Corporations – companies based in Canada that are privately held, not listed on a Canadian stock exchange, and controlled by a Non-Canadian (see A). “Control” means ownership of shares greater than 3% of the equity value, or greater than 3% of the voting rights, or “control in fact” by ownership, agreement or otherwise.
[By comparison, the Alberta Act and Regulations hold that a 'foreign controlled corporation' is one in which the share ownership is 50% or more foreign or is effectively controlled by foreigner; and for public corporations with shares traded on a stock exchange in Canada, only shareholders owning 5% or more of the shares are taken into account, provided 2/3 of the directors are Canadian citizens or permanent residents)]
- Exceptions – temporary residents studying or working in Canada, refugees, refugee claimants, and members of foreign missions to Canada. The prohibition does not apply if it conflicts with Indigenous and Treaty rights recognized in section 35 of the Constitution Act, 1982.
What is a Residential Property?
The prohibition extends to buildings with three homes or less, or parts of buildings like a semi-detached house or condominium. The prohibition is limited to residential properties located in a census metropolitan area (CMA) or census agglomeration (CA). Vacant land with no habitable dwelling will be captured by the prohibition if it is zoned “residential” or “mixed use” within a CMA or CA. Non-Canadians may continue to purchase “recreational” property (ex. cottages) depending on the location of the property.
CMAs and CAs are formed by one or more adjacent municipalities centered on a population centre or core. A CMA includes a population greater than 100,000 with 50,000 in the core, and a CA is defined as having a core population of at least 10,000. CMAs and CAs are based on census subdivisions (CSDs; a ‘delineation core' is created from those CSDs that have at least 50% of its population living in the core). See more.
In Alberta there are three CMAs, namely, Calgary, Edmonton and Red Deer. CAs include Brooks, Camrose, Canmore, High River, Lacombe, Lethbridge, Lloydminster, Medicine Hat, Okotoks, Strathmore, Sylvan Lake and Wetaskiwin. Whether a property is located within a CMA or CA can be determined by accessing these reference maps located here.
What qualifies as a Purchase?
Section 4(1) of the Act provides that “a purchase includes the direct or indirect acquisition, with or without conditions, of a legal or equitable interest or real right in a residential property.” This will include purchases made through partnerships, trusts or other entities seeking to avoid the prohibition. This could be broad enough to include assignments to a Non-Canadian, the granting of mortgages or other security interests. The definition of “purchase” does not expressly state the moment in time that a transaction is captured by the prohibition, but it could include the moment the parties execute an agreement until the completion of the conveyance.
The prohibition will not apply in some situations, such as an interest acquired by divorce, separation, gift, or death; rental of a unit for occupation by a tenant; transfer due to a security interest or secured right.
Are there penalties for violations of the Act?
The Act stipulates a breach of the prohibition is a criminal offence. Further, a fine of up to $10,000 can be imposed for anyone that violates the prohibition. This can extend to any person or entity (can extend to officers and directors of a corporation) that knowingly helps in a violation. Finally, a Court can order the sale of the property.
What are the requirements for compliance?
Non-Canadian buyers are responsible for determining if they are eligible. The Act does not impose on industry professionals (realtors, lenders, lawyers, notaries) specific requirements for gathering information or reporting. It is for professionals to determine what due diligence measures should be taken to meet their professional responsibilities and duties to their clients.
If you have any questions about the prohibition on purchase of residential property by Non-Canadians, please do not hesitate to contact our real estate team at MerGen Law.
Disclaimer: The information is intended to provide commentary in this area of law and should not be interpreted as providing legal advice. We recommend a lawyer be contacted before acting on any of the information provided.