New Federal Legislation Prohibiting the Purchase of Residential Property by Non-Canadians

Purpose

The purpose of this advisory is to inform entities of the federal government’s newly enacted Prohibition on the Purchase of Residential Property by Non-Canadians Act (“the act”), which came into force on January 1, 2023.

For a period of two years starting January 1, 2023, non-Canadians are banned from purchasing homes in Canada under the definition of “residential property” indicated in the legislation and associated regulations that the federal government published on December 21, 2022.

Although further technical interpretations of the regulations are still pending, here is the current understanding of the regulations.

Overview of Changes

The Act prohibits individuals who are not Canadian citizens or permanent residents of Canada (collectively, “non-Canadians”) from purchasing residential property in Canada for a period of two years. The prohibition also applies to corporations that are not incorporated in Canada or are controlled by non-Canadians.

 The Act:

• Prohibits non-Canadians from directly or indirectly purchasing residential property in Canada for two years, including purchases made through corporations, trusts, or other legal entities.
• Applies to residential property, including detached homes or similar buildings of one to three dwelling units as well as buildings such as semi-detached houses, strata units, or other similar premises.
• Establishes penalties for non-compliance applicable to non-Canadians, as well as any person or entity knowingly assisting a non-Canadian in contravening the prohibition.
• Establishes that a contravention of the prohibition could result in a court-ordered sale of the residential property, which would result in the non-Canadian receiving no more than the purchase price paid for the property; and
• Sets out exemptions for certain classes of people such as refugees, individuals who purchase a residential property with their spouse or common-law partner (provided the spouse or common-law partner is eligible to purchase residential property), temporary residents in Canada who satisfy the prescribed conditions in the regulations, and other classes of persons set out in the regulations.

Exemptions

Exceptions exist for international students, and temporary residents, specifically exempted foreign nationals and refugee claimants, subject to varying conditions, such as tax filing and residency obligations.

Properties located outside of a Census Metropolitan Area (CMA) or a Census Agglomeration (CA) are excluded from this prohibition.

An order requiring the residential property to be sold may be sought if certain conditions are met, namely the non-Canadian is the owner at the time the order is made, and notice requirements have been met.

Certain aspects of the Foreign Buyers Ban still lack clarity, including the exemptions. Under CREA's jurisdictional leadership, we are actively engaged in ongoing dialogue with federal policymakers, legal experts, Statistics Canada, the Canadian Mortgage and Housing Corporation, and other stakeholders for clarification on the ambiguities.

Definitions

The ban applies to “residential property,” which includes detached houses or similar buildings of one to three dwelling units, as well as parts of buildings such as semi-detached houses, strata units, or other similar premises. The definition further includes “land that does not contain any habitable dwelling, that is zoned for residential use or mixed-use, and that is located within a census agglomeration or a census metropolitan area, is a prescribed real property or immovable.”

“Non-Canadian” as it relates to corporations and other entities, refers to:

• “an entity formed otherwise than under the laws of Canada or a province;" and
• an entity formed under Canada’s laws that has direct or indirect ownership by a non-Canadian of 3% or more of the value of the entity’s equity or voting rights.

“Purchase” is defined as “the acquisition, with or without conditions, of a legal or equitable interest or a real right in a residential property,” with the exception of, among other things, acquisitions of interests resulting from transitional or life events such as death, divorce, separation, or a gift.

The Act restricts non-Canadians from avoiding the ban by using corporations or other entities to purchase residential property.

“Control” with respect to a corporation or entity, means:

• “direct or indirect ownership of shares or ownership interests of the corporation or entity representing 3% or more of the value of the equity in it, or carrying 3% or more of its voting rights;" or
• “control in fact of the corporation or entity, whether directly or indirectly, through ownership, agreement or otherwise.”

For further details, please consult the regulations.

To learn more, please refer to:

The Prohibition on the Purchase of Residential Property by Non-Canadians Act;

The Department of Finance Canada’s news release; and

 Canada Mortgage and Housing Corporation’s news release and FAQ.

source: REBGV, BCREA, BCFSA

Disclaimer: The above information is from sources believed reliable but should not be relied upon without verification. The publisher assumes no responsibility for its accuracy. You are encouraged to get independent legal advice before commencing any transaction.