Industry Warning: Prepare for the Prohibition on the Purchase of Residential Property by Non-Canadians Act

A Federal effort to combat a housing unaffordability crisis

By David Young

January 6^th – A follow up article on this Act has been posted. Click here to read. 

April 4^th—This Act has been amended. Click here to read our article on these changes. 

The Act

In the face of growing pressures to combat housing unaffordability and skyrocketing prices, on June 23, 2022 the Federal Government of Canada passed the “Prohibition on the Purchase of Residential Property by Non-Canadians Act” (“the Act”). This will come into force on January 1, 2023.[1]

The Act prohibits non-Canadians from purchasing, either directly or indirectly, any residential property in Canada. This means these individuals cannot purchase the property themselves, or through a corporation, trust, or other legal entity. This legislation is valid for two years from January 1, 2023 to December 31, 2024.

Included types of Property

Residential property includes, any real property or immovable that is:

1. a detached house or similar building, containing not more than three dwelling units,
2. a semi-detached house, rowhouse unit, residential condominium unit or other similar premises Vacant land, where the land has been zoned for residential use or mixed use and is within a Census Metropolitan Area (having a population of at least 100,000) or Census Agglomeration (having a population of at least 10,000)
3. any prescribed real property or immovable

The Act is not clear yet on what will be considered a prescribed real property or immovable. The Government is proposing to exclude recreational properties outside of a Census Metropolitan Area or Census Agglomeration.

Exceptions

This Act does not apply to:

1. Canadian Citizens or Permanent Residents;
2. a temporary resident within the meaning of the Immigration and Refugee Protection Act who satisfies prescribed conditions;
3. a protected person within the meaning of subsection 95(2) of that Act;
4. 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, permanent resident or person referred to in paragraph (b) or (c); or
5. a person of a prescribed class of persons.

The Act is not clear yet on what will be considered a prescribed class of persons.

The Act further provides for exceptions in prescribed circumstances, for foreign states (diplomatic or consular purposes).

The Act notes that the prohibition does not apply if the non-Canadian “becomes liable or assumes liability under an agreement of purchase and sale” before January 1, 2023. It could be interpreted that this means that any Agreement of Purchase and Sale signed by a non-Canadian prior to December 31, 2022 would be exempt from the prohibition. If you are non-Canadian, or representing a non-Canadian, you should be mindful of this upcoming deadline and act appropriately.

Further exemptions are expected to follow.[2]

Violations

The consequence for violating this prohibition, or aiding anyone to violate this prohibition, ranges from an offence liable on summary conviction, to a fine of up to $10,000. A non-Canadian who is convicted of violating this prohibition, in addition, may be forced to sell the property for no more than the purchase price at which it was obtained.[3]

If you are involved in the purchase of a residential property (whether you are a developer, lawyer, realtor, etc.) you must make reasonable inquiries as to the citizenship status of the purchaser, or potentially face the penalties under the legislation. 

Conclusion—What Next?

The final regulations to accompany this legislation and provide further clarity on these matters are expected to be published later this fall. For now, this is a significant change in legislation that should be monitored closely.

This article will be updated when further information is available.