An Overview of the Prohibition on the Purchase of Residential Property by Non-Canadians Act

Starting on January 1, 2023, and for the following two years, anyone that is not a Canadian citizen, a permanent resident, or a person registered as an Indian under the Indian Act, is prohibited from purchasing¹ Canadian real estate, specifically residential properties². This ban also applies to companies that are not incorporated in Canada, and to Canadian companies that are directly or indirectly owned³ by non-Canadian individuals or foreign corporations. The Prohibition on the Purchase of Residential Property by Non-Canadians Act⁴ (the “Act”) is put in place by the Canadian government as a response to the “prevailing housing affordability concerns experienced by Canadians”⁵.

This restriction, however, does not apply to foreign nationals and protected persons holding valid documentation and/or eligible status. Another exception is non-Canadian individuals purchasing residential property together with their spouse or common-law partner who holds the appropriate citizenship status. Temporary residents, such as students and workers, are also exempt, provided that they satisfy the following provisions: 

International students:

• must be “enrolled in a program of authorized study at a designated learning institution”⁶;
• must have filed the required income tax returns for each of the five taxation years prior to the year the purchase was made;
• must have been physically present in Canada for a minimum of 244 days in each of the five calendar years prior to the year the purchase was made;
• must ensure the purchase price of the residential property does not exceed $500,000; and
• must ensure they have not purchased more than one residential property.

Work permit holders or individuals authorized to work in Canada under Section 186 of the Immigration and Refugee Protection Regulations:

• must have worked at least thirty hours per week in Canada “for a minimum period of three years within the four years preceding the year in which the purchase was made”⁷;
• must have filed the required income tax returns for at least three of the four taxation years prior to the year the purchase was made; and
• must ensure they have not purchased more than one residential property. 

If a non-Canadian entity is a party to a purchase and sale agreement executed prior to January 1, 2023, the entity will not be subject to the Act⁸. 

While all purchase and sale contracts remain binding⁹, any non-Canadian entity found in violation and any accomplice found intentionally facilitating the violation of the Act, are guilty of committing a federal offence and can become liable to a fine of up to $10,000. Once convicted, the non-Canadian entity may be ordered by court to sell the residential property involved and allowed to receive only the portion of the sale proceeds that is equal to the purchase price.

Even though compliance requirements and information reporting are not asked of real estate professionals and the like, it would be prudent for all parties involved in purchase and sale transactions in the new year to become well acquainted with the Act and the accompanying regulations. Canadian professionals are expected to continue to practice the usual, if not stricter, course of due diligence, as this new Act is being implemented and with more supporting materials from the government on how to navigate it to come.

Please note that this is only a summary of the subject matter and should not be taken as legal advice. We encourage you to seek out legal counsel for guidance and information pertinent to your situation.

_______

¹ Purchase is defined by the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations⁵ (the “Regulations”) as “the acquisition, with or without conditions, of a legal or equitable interest or a real right in a residential property”. Residential property acquired by means of “death, divorce, separation or a gift” are not considered purchases, and neither are “the rental of a dwelling unit to a tenant”, “the transfer under the terms of a trust that was created prior to the coming into force of the Act”, or “the transfer resulting from the exercise of a security interest or secured right by a secured creditor”.

² Residential property is defined by Section 2 of the Act as “any real property or immovable, other than a prescribed real property or immovable, that is situated in Canada and that is… a detached house or similar building containing not more than three dwelling units… [or] a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises… [used and enjoyed] as a place of residence for individuals…”⁴. In addition, residential property also covers vacant land for residential or mixed use situated in a census agglomeration or census metropolitan area (as defined by Statistics Canada). In short, these terms have to do with population density within an area. For an area to be described as a census metropolitan area, it must house a population of 100,000 or more, with at least 50,000 people living at its core. “A census agglomeration must have a core population of at least 10,000”^A. It should be further noted that properties located in areas that are not within either a census agglomeration or a census metropolitan area are excluded from the ban.

^A Statistics Canada. (2018, September 17). Census metropolitan area (CMA) and Census agglomeration (CA). https://www150.statcan.gc.ca/n1/pub/92-195-x/2011001/geo/cma-rmr/cma-rmr-eng.htm

³ Control is defined by the Regulations⁵ as “with respect to a corporation or entity… [the] 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”.

⁴ The Government of Canada. (2022, December 9). Prohibition on the Purchase of Residential Property by Non-Canadians Act S.C. 2022, c. 10, s. 235. https://laws-lois.justice.gc.ca/eng/acts/P-25.2/page-1.html

⁵ The Government of Canada. (2022, December 21). Prohibition on the Purchase of Residential Property by Non-Canadians Regulations: SOR/2022-250. https://canadagazette.gc.ca/rp-pr/p2/2022/2022-12-21/html/sor-dors250-eng.html

⁶ Section 5(a) of the Regulations.

⁷ Section 5(b)(i) of the Regulations.

⁸ Section 4(5) of the Act.

⁹ Section 5 of the Act.