On January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act went into effect. It prevents foreign buyers from purchasing residential real estate in Canada for two years. The government believes this will help cool a hot market and make homeownership accessible for more Canadians.
The specifics of the ban, including what is considered a purchase, what the government considers a residential real estate property, who is exempted from the act, and the level of non-Canadian investment that will be allowed before being deemed as non-Canadian, will be addressed in a series of regulations, one of which was published on December 22, 2022.
“Non-Canadian” under the Act
Under the act, non-Canadians are considered as:
- 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 incorporated otherwise than under the laws of Canada or one of its provinces
- a corporation incorporated under the laws of Canada or one of its provinces 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 in paragraph (a) or (b)
- a prescribed person or entity following the Regulations
Therefore, the ban does not apply to:
- temporary residents who satisfy the Regulations.
- individuals registered as an “Indian” under the Indian Act
- individuals who are non-Canadians and who purchase a residential property with their spouse or common-law partner, if the spouse or common-law partner is eligible to purchase residential property in Canada
- a foreign state purchasing a residential property for diplomatic or consular purposes
- any individual prescribed by the Regulation.
Which residential real estate is affected by the ban?
Under the act, a “residential property” includes any property that is:
- a detached house or similar building containing not more than three dwelling units. It is to be noted that a dwelling unit is defined as a residential unit that contains private kitchen facilities, a private bath, and a private living area.
- part of a building that is a semi-detached house, rowhouse unit, residential condominium unit, or other similar premises that is a separate parcel owned apart from another building unit
- any other type of property that as set out in the Supporting Regulations
In addition, the property covered by the Act is a residential real estate located in a census agglomeration (CA) or census metropolitan area (CMA). To properly identify these agglomerations and areas, it is necessary to consult the Statistics Canada documents entitled “Standard Geographical Classification (SGC) 2021”. The Act would not apply to real estate sales outside of these areas.
Impacts on pre-existing contracts and offers to purchase
The ban does not apply if a non-Canadian becomes liable or assumes liability under a purchase agreement and sale of residential property in Canada before January 1st, 2023.
The question of what happens to a property for which an offer to purchase was made before the Act took effect, and is intended to be sold after January 1st, 2023, is still unknown. An answer is expected in the next few weeks following the receipt of new regulations or a declaratory judgment from the Superior Court on that specific issue.
Sanctions and penalties
A non-Canadian that contravenes the Act, or a person or entity that counsels, induces, aids or abets, or attempts to counsel, induce, aid or abet a non-Canadian to contravene to the Act, is guilty of an offence and liable on summary conviction to a fine of not more than $10,000.
If a non-Canadian is convicted of contravening the Act, the superior court of the province which the residential property is located, may order it to be sold. The non-Canadian buyer will not be able to recover more than what was paid for the property.
Despite the sanctions mentioned above, the Act does not negate the validity or enforceability of contracts of purchase and sale that contravene the interdiction. Sellers and purchasers will still be legally bound to honour contracts that violate the prohibition.
Several questions remain regarding the scope of the Act and its specifics. Answers to those questions should arrive in the months ahead, following the adoption of a new series of regulations. Also, the courts will likely be called upon to interpret the Act and its regulations. That should help bring more clarity to the issue.
Do not hesitate to contact the authors of this summary for more information or a consultation.