Two-Year Ban on The Purchase of Residential Property by Non-Canadians

The government of Canada, in the federal budget dated April 7, 2022, proposes a solution to the overheating real estate market in Canada. On June 23, 2022, by passing the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”), the government aims to influence the residential real estate market by preventing non-Canadian investors from using the market for speculative financial assets, and to establish a more controlled market in favor of Canadian households.

Therefore, for a two-year period as of the effective date of the Act, it will be prohibited for a non-Canadian to purchase, directly or indirectly, a residential property. This is addressed to non-Canadians both natural persons and legal persons.

Non-Canadians Affected by The Prohibition

More specifically, an individual who does not have Canadian citizenship, who is not a permanent resident, or is not registered as an Indian under the Indian Act, will be prohibited from purchasing a residential property in Canada. This Act will be applied from January 1, 2023 to December 31, 2024.

The same is true for any corporation incorporated otherwise than under the laws of Canada or a province. Notwithstanding the foregoing, a corporation incorporated under the laws of Canada or a province whose shares are not listed on a stock exchange in Canada for which a designation under section 262 of the Income Tax Act is in effect and that is controlled by a person referred to hereabove is considered a non-Canadian.

It should be noted that the legislator left room to attribute, in future regulation, the non-Canadian title to certain persons or entities.

Residential Properties

The residential properties covered by the ban are defined in the Act. Henceforth, non-Canadians will be prohibited from purchasing the following:

  • A detached house or similar building, containing not more than three dwelling units (i.e., a residential unit that contains private kitchen facilities, a private bath and a private living area), together with that proportion of the appurtenances to the building and the land subjacent or immediately contiguous to the building that is reasonably necessary for its use and enjoyment as a place of residence for individuals;
  • 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 owned, or intended to be owned, apart from any other unit in the building, together with that proportion of any common areas and other appurtenances to the building and the land subjacent or immediately contiguous to the building that is attributable to the house, unit or premises and that is reasonably necessary for its use and enjoyment as a place of residence for individuals; and
  • Any prescribed real property or immovable by future regulation.

Exceptions

The legislator narrowed the pool of persons affected by the ban by providing a list of individuals, corporations or entities who, by definition are non-Canadians, but who will be eligible for an exception under the new ban:

  • A temporary resident within the meaning of the Immigration and Refugee Protection Act who satisfies prescribed conditions;
  • A protected person, including refugees, within the meaning of subsection 95(2) of the Immigration and Refugee Protection Act;
  • A non-Canadian individual who purchases residential property in co-ownership with their spouse or common-law partner (i.e., a person who is cohabiting with the individual in a conjugal relationship, having so cohabited for a period of at least one year) if the spouse or common law-partner is a Canadian citizen, person registered as an Indian under the Indian Act, a permanent resident or person referred to in the exemptions hereabove;
  • A foreign state who purchases residential property for diplomatic or consular purposes. In the absence of specifics to this effect, it would also apply to all accredited members of foreign missions, which will need to be clarified by regulation; and
  • A non-Canadian who becomes liable or assumes liability under an agreement of purchase and sale of the residential property before the day on which the Act comes into force.

Finally, the legislator also left room to determine, in future regulation, certain categories of persons eligible to an exception or certain situations which would justify an exception.

Offences And Fines

Failure to comply to this prohibition in no way invalidated the transaction. However, a non-Canadian that purchases a residential property between January 1, 2023 and December 31, 2024 has committed an offence and is liable on summary conviction to a fine of up to $10,000.00.

The same goes for every person or entity that counsels, induces, aids or abets or attempts to counsel, induce, aid or abet a non-Canadian to purchase, directly or indirectly, any residential property knowing that the non-Canadian is prohibited under the Act from purchasing the residential property.

In addition, an officer, director or agent or mandatary, a senior official of the corporation or entity, and any individual authorized to exercise managerial or supervisory functions on behalf of the corporation or entity, who directed, authorized, assented to, acquiesced in or participated in the commission of the offence of the corporation or entity, is a party to and liable for the offence whether or not the corporation or entity has been prosecuted or convicted.

It is important to understand that a conviction following the purchase of a residential property by a non-Canadian in no way invalidates the transaction in question. However, the Act specifies that the superior court of the province in which the residential property to which the contravention to Section 4 of the Act relates is situated may, on application of the responsible Minister, order the residential property to be sold in the prescribed manner and under prescribed conditions. One thing is certain, following such an order under section 7 of the Act, an infringing non-Canadian will not be able to receive from the proceeds of the sale of the residential property, more than the purchase price paid for the property.

Regulations

By its application, the Act provides that it will be possible by regulation to determine what constitutes a “purchase”. Moreover, this forthcoming regulation will, we hope, provide the necessary clarifications on the exceptions concerning non-Canadians that, under the terms of a purchase-sale agreement, become responsible for a residential property or assumes its responsibility prior to the effective date of January 1, 2023.

There is also the issue of defining the concept of “control”. This Act provides the possibility of extending the prohibition to acquisitions made through intermediary legal persons, whether corporations, other persons, or entities to be covered by future regulation.

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