If you’re a foreign buyer looking to purchase Canadian residential real estate then you will need to put your plans on hold for at least the next two years, as the Federal Government of Canada has passed legislation prohibiting non-Canadians from purchasing residential property.
To tackle Canada’s ongoing housing unaffordability and supply crises, on June 23, 2022, the Federal Government of Canada passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”), and subsequently passed the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations (the “Regulations”). The Act and the Regulations came into force on January 1, 2023, and prohibit non-Canadians from purchasing, either directly or indirectly, any residential property for two (2) years, until December 31, 2024.
In accordance with the Act, “purchase” is defined as the acquisition, with or without conditions, of a legal or equitable interest or a real right in residential property.
Definition of Non-Canadian
What constitutes a non-Canadian under the Act? The Act defines a “non-Canadian” as follows:
- an individual who is neither a Canadian citizen nor a person registered as an Indian under the Indian Act nor a permanent resident;
- a corporation that is not incorporated under the laws of Canada or a province (“non-Canadian Corporation”);
- a corporation incorporated under the laws of Canada or a province that is controlled by a person who is not a Canadian citizen or a non-Canadian Corporation; or
- a prescribed person or entity. Per the Regulations, a prescribed person or entity includes any entity formed other than under the laws of Canada or a province.
The Regulations define what constitutes “control” in respect of a corporation or entity. 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.
We note that since the 3% threshold is significantly lower than is applied in other circumstances, such as with respect to BC’s Land Owner Transparency Act, there is a risk that larger companies with numerous shareholders or stakeholders may not realize they are subject to the prohibitions under the Act. As such, before entering into a contract to purchase residential real estate, corporations and entities should carefully review their shareholdings and agreements (e.g., trust agreements) to ensure that they are compliant with the Act.
Definition of Residential Property
Residential property means any real property or immovable, other than property located in Canada not within a census agglomeration or census metropolitan area, that is situated in Canada and that is:
- a detached house or similar building, containing not more than three dwelling units;
- a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises; or
- any prescribed real property or immovable. Per the Regulations, this includes land that does not include a habitable dwelling but is zoned for residential or mixed use and that is in a census agglomeration or census metropolitan area.
Statistics Canada defines census agglomeration or census metropolitan areas as follows:
- a census agglomeration must have a core population of 10,000; and
- a census metropolitan area must have a total population of at least 100,000, of which 50,000 or more live in the core.
Contravention of the Act
Any non-Canadian that contravenes the Act, and every person or entity that counsels or aids a non-Canadian in purchasing any residential property knowing that the non-Canadian is prohibited under the Act, is guilty of an offence and liable on summary conviction to a fine of up to $10,000.00. If a corporation or entity commits an offence, any officers, directors, senior officials and other representatives of the corporation or entity can be a party to and liable for the offence whether or not the corporation or entity has been prosecuted or convicted.
If a non-Canadian is convicted under the Act, the Supreme Court of BC may order the residential property be sold. The proceeds of any court-ordered sale can be no more than the purchase price paid for the residential property.
Exceptions
There are exceptions to the prohibitions set forth in the Act. The Act does not apply to an individual who is a non-Canadian and who purchases residential property in Canada with their spouse or common-law partner if the spouse or common law-partner is a Canadian citizen, person registered as an Indian under the Indian Act, or permanent resident. Further, the Act does not apply to foreign states purchasing residential property for diplomatic purposes.
As well, the acquisition by an individual of an interest resulting from death, divorce, separation or a gift, the transfer under the terms of a trust that was created prior to the coming into force of the Act, or the transfer of residential property resulting from the exercise of a security interest by a secured creditor are exempted.
Conclusion
While it’s too soon to confirm whether the Act will have the intended cooling effect on the housing market desired by the Federal Government of Canada, it will undoubtedly affect the future composition of residential property ownership for the next two years.
Purchasers, developers, financiers, and counsel will want to be careful to ensure they are compliant with the Act and the Regulations, and should keep an eye on any subsequent legislative changes until the Act’s repeal date on January 1, 2025.
If you have any questions regarding whether this new legislation and if it applies to your circumstances, please reach out to any member of LK Law’s Real Estate Practice Group for assistance.
This article is intended to be an overview of the law and is for informational purposes only. Readers are cautioned that this article does not constitute legal or professional advice and should not be relied on as such. Rather, readers should obtain specific legal advice in relation to the issues they are facing.