Prohibition on the Purchase of Residential Property by Non-Canadians Act: 5 FAQs
Published:
March 16, 2023
Author(s):
We updated this publication on March 30, 2023.
On January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act and accompanying Regulations took effect. The Act limits non-Canadians from buying residential property in Canada until January 1, 2025 to try to address the current shortage of residential housing and make homes more affordable for Canadians citizens and permanent residents. While the Act’s long-term implications aren’t yet clear, the vast scope of the transactions it covers is. Any “non-Canadian” individual or corporation considering acquiring an interest in a Canadian property must take exceptional care to ensure the Act doesn’t prohibit their transaction or face exposure to penalties, including the forced resale of a property acquired in violation of the Act. But there are still opportunities for non-Canadians to buy residential property in Canada – especially in Atlantic Canada – despite the Act.
To help you understand the Act and its implications, here are the answers to five key questions about the prohibition of non-Canadians’ purchase of residential property in Canada.
1. What properties does the Act apply to?
The Act defines “residential property” as any detached house or building with three or less habitable dwelling units, or any semi-detached house, rowhouse unit or condominium unit. However, on March 27, 2023, the federal government effected amendments to the Regulations under the Act to clarify the scope of properties to which the Act applies (although as of March 29, 2023 these amendments don’t appear in the published text of the Regulations):
Vacant Land. Any vacant land – even if it’s zoned residential or mixed-use – is excluded from the Act.
“Development”. Non-Canadians can purchase residential property for the purpose of “development”. It’s not yet clear whether “development” will be defined in the amended Regulations. However, the government announcement directs readers to the Canada Mortgage and Housing Corporation (CMHC) FAQs, which state that “development is meant to capture any alterations or improvements to a residential property, including the redevelopment of an existing building” but “is not intended to capture simple repairs, renovations, remodeling or other similar modifications”. The FAQs also state that purchasing residential property for the purpose of leasing or renting it to tenants is also not considered “development”. However, it’s important to note that the CMHC FAQs are not law, so it remains to be seen how a court will interpret the definition of “development” in the Regulations, if they don’t define it.
2. Where does the Act apply?
Because the Act’s intent is to protect the residential housing stock in large urban areas, its prohibition is limited to Statistic Canada’s defined Census Metropolitan Areas (CMA) and Census Agglomerations (CA). The Act does not apply to any transactions outside of these areas. Atlantic Canada’s unique amount of available rural property the Act doesn’t cover makes the region a great choice for non-Canadians still hoping to purchase residential property in Canada. However, it’s important to be aware that the CMA and CA areas are much broader than the municipality’s geographic boundaries; to find out whether a specific location is within a CMA or a CA, and if so which one, you can use Statistics Canada’s GeoSearch Tool (remember to select the most recent census date). For example, East Hants, N.S. is not within the Halifax Regional Municipality boundaries – but it is in the Halifax CMA. In the Atlantic Provinces, these CMA or CA areas generally include the following locations as of 2023:
Nova Scotia. Halifax, Sydney, New Glasgow, Truro and Kentville.
New Brunswick. Bathurst, Campbellton, Edmundston, Fredericton, Miramichi, Moncton and Saint John.
Prince Edward Island. Charlottetown and Summerside.
Newfoundland & Labrador. Bay Roberts, Corner Brook, Grand Falls-Windsor and St. John’s.
Note that each province and territory can also effect legislation regulating property rights. For example, the Prince Edward Island Lands Protection Act limits the amount of land a person or a corporation can own on P.E.I. It’s wise to investigate any additional restrictions that apply to a property purchase.
3. What purchases does the Act apply to?
If a prohibited non-Canadian entered into a binding Agreement of Purchase and Sale for a residential property before January 1, 2023, they aren’t prohibited from completing the purchase. However, the Act applies to all acquisitions of either a legal or an equitable interest in residential property after January 1, 2023 until January 1, 2025 – not just “buying a house”. While no Canadian court has yet considered the breadth of this definition, it’s likely it captures any non-Canadian acquiring any interest in a residential property, including through a mortgage, option to purchase, easement, or lease. Currently, the only exceptions the Act expressly sets out include:
- An acquisition resulting from death, divorce, separation or gift.
- A non-Canadian’s lease of a unit for the purpose of their own occupation.
- A transfer of residential property under the terms of a trust that was created before the Act took effect.
- A transfer resulting from the exercise of rights by a secured creditor.
4. Who’s a “non-Canadian”?
The Act defines a “non-Canadian” individual, corporation and entity – but also sets out some exceptions.
Individuals. The Act defines a non-Canadian as an individual who is not a Canadian citizen, a person registered as an Indian under the Canadian Indian Act or a permanent resident.
Corporations & Other Entities. The Act defines a non-Canadian corporation as any corporation formed other than under the laws of Canada or a Canadian province or territory, or a corporation controlled by a person who is a non-Canadian. The Regulations define “control” as either:
- Direct or indirect ownership of the 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. Notably, the March 27 amendments to the Regulations under the Act increased this threshold from 3% to 10% expressly to align with the Underused Housing Tax Act thresholds.
- Control in fact of the corporation or entity, whether directly or indirectly, through ownership, agreement or otherwise.
This means Canadian corporations with a small degree of foreign ownership (10% or more) are “non-Canadians” subject to the Act. However, it’s unclear to what degree the Act will apply to complex corporate structures. For example, a business organization might have several levels of partially or wholly owned subsidiaries; it’s not yet known how deep into a corporation’s structure that the foreign ownership ban will apply.
Exceptions. There are exceptions to the Act’s definition of a “non-Canadian”. Some notable ones include:
- International Students. International students are exempt from the Act if they meet all these criteria:
- They are enrolled in a program of authorized study at a “designated learning institution” as defined in the Canadian Immigration and Refugee Protection Regulations.
- They filed all required income tax returns under the Canadian Income Tax Act for each of the five taxation years preceding the year of the purchase.
- They were physically present in Canada for a minimum of 244 days in each of the five calendar years preceding the year of the purchase.
- The purchase price of the residential property doesn’t exceed CAD$500,000.
- They haven’t purchased more than one residential property since the Act took effect (January 1, 2023).
- Temporary Foreign Workers. Temporary foreign workers in Canada are exempt from the Act if they meet both these criteria, which the March 27 amendments to the Regulations eased relative to the initial criteria:
- They either hold a valid work permit or are authorized to work in Canada under the Immigration and Refugee Protection Regulations.
- They haven’t purchased more than one residential property since the Act took effect (January 1, 2023).
- Non-Canadians purchasing with a spouse or common-law partner who is not subject to the Act. A non-Canadian purchasing residential property with their spouse or common-law partner is also exempt from the Act if their spouse or common-law partner is: a Canadian citizen; a permanent resident of Canada; a registered Indian; a “protected person” as defined in the Canadian Immigration and Refugee Protection Act; an exempt international student; or an exempt temporary foreign worker.
5. What are the penalties for violating the Act?
To prevent non-Canadians from circumventing the legislation and purchasing residential property in violation of the Act, the Regulations set out strict penalties for both individuals and corporations and entities that breach the Act.
Financial Penalty. Every non-Canadian and every person or entity that counsels, induces, aids, or abets a non-Canadian in purchasing property knowing that the Act prohibits the purchase is guilty of an offence and liable to a fine of up to CAD$10,000.
Personal Liability for Corporate Breach. If a corporation violates the Act, then any officer, director, agent, senior official or individual authorized to exercise managerial or supervisory functions for the corporation and who authorized or assented to the corporation’s commission of the offence is a personally party and personally liable for the offence.
Property Resale. A non-Canadian found to have purchased property in violation of the Act can be made to sell the property. The Act also prohibits the non-Canadian from profiting on the resale of a residential property they bought in violation of the Act.
Please contact your McInnes Cooper lawyer or any member of our Real Estate Team @ McInnes Cooper to discuss whether the Prohibition on the Purchase of Residential Property by Non-Canadians Act applies to your real estate transaction.
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