Further to article below – please click HERE for update on this issue.
Beginning January 1, 2023, the federal government’s Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) will come into effect across Canada, resulting in what is being referred to as the foreign home buyer ban.
The practical effect of the Act is that individuals who meet the definition of “non-Canadian” will not be permitted to purchase residential real estate for at least two years. The Act may also impact various Canadian citizens who offer their services in the residential real estate market.
Below we have outlined what the legislation prohibits, some relevant definitions, exemptions and what kind of properties foreign buyers will be prohibited from purchasing. We also briefly discuss the legislation’s penalty provision, which may impact a variety of Canadian professionals that provide residential real estate advice in Canada.
What is Prohibited under the Act?
Section 4 of the Act states:
“Despite section 34 of the Citizenship Act,[1] it is prohibited for a non-Canadian to purchase, directly or indirectly, any residential property.”
Who is Considered a Non-Canadian under the Act?
Section 2 of the Act defines a non-Canadian as:
“(a) An individual who is neither a Canadian citizen, a permanent resident of Canada, nor a person who is registered as an Indian under the Indian Act;
(b) A corporation incorporated outside of Canada or a Canadian province;
(c) A corporation incorporated in Canada or a Canadian province that is controlled by a non-Canadian as defined in (a) and (b) and whose shares are not listed on a Canadian stock exchange or a stock exchange designated by the Minister of Finance under the Income Tax Act; or
(d) A prescribed person or entity.”
Exceptions from the class of non-Canadians.
However, not all non-Canadians are prohibited from purchasing Canadian residential real estate. Section 4(2) of the Act outlines particular individuals who will be exempt from the ban.
Section 4(2) states:
“(a) a temporary resident under the Immigration and Refugee Protection Act – a non-Canadian who has a valid visa or other document required by the regulations, such as students and foreign workers under federal work permits;
(b) a protected person under the Immigration and Refugee Protection Act – a person who has been granted refugee status under the United Nations Convention Relating to the Status of Refugees;
(c) 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, a person registered as an Indian under the Indian Act, a permanent resident of Canada or a person described in (a) and (b); or
(d) a person of a prescribed class of persons.”
What is Considered Residential Property?
Section 2 of the Act defines residential property as:
“any real property or immovable property other than a prescribed real property or immovable that is situated in Canada, and that is:
(a) a detached house or similar building, containing not more than three dwelling units, together with that proportion of the appurtenances to the building and the land subjacent or immediately contiguous to the building that is reasonably necessary for its use and enjoyment as a place of residence for individuals;
(b) a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises that is, or is intended to be, a separate parcel or other division of real property or immovable owned, or intended to be owned, apart from any other unit in the building, together with that proportion of any common areas and other appurtenances to the building and the land subjacent or immediately contiguous to the building that is attributable to the house, unit or premises and that is reasonably necessary for its use and enjoyment as a place of residence for individuals; or
(c) any prescribed real property or immovable.”
Under the Act, a dwelling unit is defined as “a residential unit that contains private kitchen facilities, a private bath and a private living area.”
What are Offences under the Act?
Section 6 of the Act outlines the offences, penalties, and who is considered a party to the offence in the case of a corporation.
Section 6(1) of the Act states:
“Every non-Canadian that purchases residential property and every person or entity that counsels, induces, aids or abets or attempts to counsel, induce, aid or abet a non-Canadian to purchase, directly or indirectly, any residential property knowing that the non-Canadian is prohibited under this Act from purchasing the residential property is guilty of an offence and liable on summary conviction to a fine of not more than $10,000.”
Section 6(2) of the Act states:
“If a corporation or entity commits an offence, any of the following persons that directed, authorized, assented to, acquiesced in or participated in the commission of the offence is a party to and liable for the offence whether or not the corporation or entity has been prosecuted or convicted:
(a) an officer, director or agent or mandatary of the corporation or entity;
(b) a senior official of the corporation or entity;
(c) any individual authorized to exercise managerial or supervisory functions on behalf of the corporation or entity.”
Reflections on the Act
The offence provision in the Act is worded quite broadly. As a result, anyone who advises or assists a non-Canadian individual or corporation in purchasing residential real estate, either directly or indirectly, while the ban is in effect could face a significant penalty. Additionally, section 6(2) makes it clear that when a non-Canadian corporation purchases residential real estate, various individuals involved with the purchase may be liable to pay a penalty.
For the time being, there is a significant amount of uncertainty about the Act. It remains unclear how the penalty will be enforced, what advice and actions will be penalized, and even what “control” of a corporation by a non-Canadian actually means. The definition of control under the Act is “the meaning assigned under the regulations.” Unfortunately, there are currently no regulations in place,[2] so it is difficult to determine whether a non-Canadian is considered to control a corporation for the purposes of the Act.
The definition of non-Canadian also remains uncertain. The current definition is quite broad and captures many individuals and corporations that lawyers, real estate agents, and property developers regularly work with in the course of their businesses. Moreover, the class of non-Canadians may expand over time when regulations are introduced. This means that professionals offering services in the Canadian residential real estate market will have to actively inform themselves of changes as the Act and regulations come into effect.
Beginning on January 1, 2023, Canadian professionals offering services to non-Canadian individuals and corporations will need to be mindful of their advice to those clients. The broad wording of the Act’s offence provision creates a situation where lawyers, real estate agents, and anyone offering services or advice in the Canadian residential real estate market must carefully consider how they discuss the Act and the potential ramifications of trying to circumvent it.
Rebecca Dickson is an associate lawyer practicing primarily in the areas of business and securities law at Pushor Mitchell. Kyle Ramsey is an articled student at Pushor Mitchell who completed law school at the University of Alberta, and will be called to the bar in 2023.
For more information, please contact Rebecca Dickson at [email protected] or Kyle Ramsey at [email protected].
[1] Section 34 of the Citizenship Act grants rights to individuals who are not citizens of Canada to acquire and hold property in the same way as Citizens of Canada.
[2] As of November 28, 2022.
