Prohibition on the Purchase of Residential Property by Non-Canadians

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, with some exceptions, 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, who is not a temporary resident within the meaning of the Immigration and Refugee Protection Act who falls within one of the prescribed exceptions or is not registered as an Indian under the Indian Act, will be prohibited from purchasing a residential property in Canada. This Act is effective as of January 1, 2023 until December 31, 2026.

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.

Note that the legislator has, by regulation, defined the concept of control, which we will b address further below.

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.

The notion of residential property is clarified in the regulation and will be detailed below.

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 has determined more precisely, by regulation, the conditions to meet the requirements for temporary resident status in order to be exempted from this prohibition: our immigration law article on the subject discusses this in more detail.

Promise to purchase signed prior to January 1, 2023

On January 31, 2023, the Superior Court ruled that non-Canadians who entered into a promise to purchase and sell prior to January 1, 2023 could still buy a residential property , even if such a sale is finalized during the prohibition period.

The court allows the unopposed application for a declaratory judgment and finds that the upcoming sales arising from contracts entered into before the prohibition are not affected by the ban:

[Our translation] “[7] DECLARES that under the exemption provided in subsection 4(5) of the Prohibition on the purchase of residential property by non-Canadians Act, the prohibition on the purchase of any residential property by any non-Canadian provided for in subsection 4(1) of the Prohibition on the purchase of residential property by non-Canadians Act does not apply to a sale resulting from a promise to purchase and sell entered into by a non-Canadian prior to January 1, 2023;”

Thus, although the time limit for an appeal has not yet expired, this decision clarifies (at least temporarily) the scope of this Act and its lack of effect on promises to purchase entered into prior to the Act’s entry into force.

Offences And Fines

Non-compliance to this prohibition in no way invalidates the transaction. Nonetheless, the Act provides that the non-Canadian who purchases a residential property between January 1, 2023 and December 31, 2024, is guilty of an offence and liable on summary conviction to a maximum fine of $10,000.

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 this Act from purchasing the residential property.

In addition, an officer, director, 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 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 under the Law;

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 is situated and to which the contravention to Section 4 of the Act relates 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

On December 2, 2022, the federal government registered the Prohibition of the Purchase of Residential Real Property by Non-Canadians Regulations, which came into force on January 1, 2023, and the Amendments to Prohibition on the Purchase of Residential Property by Non-Canadians Regulations, which came into force on March 27, 2023 (the two regulations being hereinafter collectively referred to as the “Regulation”). The Regulation clarifies the definitions of “control” and “purchase”, and also clarifies the notion of “residential property”.

The notion of control is relevant in determining whether a corporation is considered a non-Canadian within the meaning of the Act. This will be the case if it is controlled by a non-Canadian affected by the ban. Control, with respect to a corporation or entity, means direct or indirect ownership of shares or ownership interests of the corporation or entity representing 10% or more of the value of the equity in it, or carrying 10% or more of its voting rights; or control in fact of the corporation or entity, whether directly or indirectly, through ownership, agreement or otherwise.

As for the definition of purchase, the Regulation specifies that what constitutes a purchase can include the acquisition, with or without conditions, of a legal or equitable interest or a real right in a residential property. This means that the definition of purchase can include the acquisition of shares or interests that an entity holds in a residential property. However, this expansion does not apply to land acquired by a non-resident for development purposes, as this type of acquisition remains possible for non-residents.

With respect to “prescribed real property”, the Regulation, in subsection 3(1), has clarified that this term does not include real property that is not part of a census agglomeration (“CA”) or a census metropolitan area (“CMA”)². In summary, it can be understood that recreational properties that are not in a Census Metropolitan Area or Census Agglomeration are not considered residential. As such, these properties are not subject to the purchase prohibition. However, the amending by-law passed in March 2023 repeals the provisions originally enacted with respect to residential and mixed-use land, which can now be purchased by non-residents.

ABOUT US

With our team of professionals, lawyers, notaries and tax specialists covering the entire Quebec territory, Cain Lamarre is the most well-established law firm in Quebec and one of the largest in the province.

Contact us for more informations : immobilier@cainlamarre.ca

_________________________________________

[1] 9357-4010 Québec Inc. v. Yi-Fang Tai et al., N°500-17-123410-220, January 31, 2023.

[2] As a reminder, a CMA must have a total population of at least 100,000 and its core population must be at least 50,000 based on adjusted data from the previous Census of Population program. A CA must have a core population of at least 10,000 based on the previous Census of Population program.