Amendments to the Prohibition on the Purchase of Residential Property by Non-Canadians Act

Four things you need to know.

By David Young

In the past few months we have posted several articles (original article and update), on the introduction of the Prohibition on the Purchase of Residential Property by Non-Canadians Act (“the Act”).

This Act made significant waves in Canada’s real estate industry. The Act and its regulations were designed as part of the Governments multi-pronged approach to increasing home availability and affordability. However, it did not take long for the impacts of the Act, and the potentially unintended consequences of such, to make many question whether the Act would be able to achieve what it desired.

Once the Act was in force, it became immediately clear that there was a lack of clarity in the Act on situations which were not clearly prescribed. This meant that, for example, foreign-owned corporations with buy-sell provisions were unsure whether or not they could continue their business. Suddenly, large developers in Canada which are an essential element of the creation of housing, were unable to continue their operations in the same manner as before, if they had more than 3% foreign ownership. While it would seem that such Act would consider these consequences and not intend to stimy residential development (especially in light of Ontario’s promise to build 1.5 million homes in the province by 2031), industry members were left with more questions than answers.

The Government heard these concerns, and they acted. Just last week, the Government announced, and immediately put into force, several amendments to the Act and its regulations. These changes are discussed below.

Change #1- An Increased Threshold for Foreign Control

As mentioned above, a significant impact of the Act was that no company with more than 3% foreign ownership/ control could purchase residential real estate (or land designated for it). However, while the intention of this appeared to be to regulate foreign buyers in the residential context, it quickly became problematic in the commercial development context. Since the ban included land designated for residential or mixed-use development, it unintentionally encompassed properties such as malls and grocery stores with mixed-use zoning. It also prevented the operation of many Real Estate Investment Trusts (REITs) which have no impact on the residential home market that the Act sought to regulate.

The first thing that the Government has done to address this is increasing the threshold for foreign control of a company to 10%. This is quite an increase from 3%. Further, the amendments explicitly exempt entities formed in Canada on the Canadian stock exchange.

Change #2—An Exception for Residential Development

In addition to the above changes, whether or not a corporation is publicly traded, non-Canadians can purchase residential property for the purpose of development. This is a significant departure from the original Act. The Government appears to have heard and addressed the concerns that many developers voiced when the Act came into force.

Change #3—A Vacant Land Exception

The provision in the Act which banned non-Canadians from purchasing any vacant land if it was zoned for residential or mixed-use, has been repealed. This opens up opportunities for developers, as well as non-Canadians who want to use such land for non-development purposes.

Change #4—Work Permit Holder Exemptions Expanded

Another consequence of the Act in its original form, was that it unduly restricted non-Canadians from buying homes, even if their intention was to settle down and reside in said homes. While banning non-Canadians from buying investment homes could be reasonably assumed to create a larger inventory for Canadians searching for a place to live, banning non-Canadians from buying homes in which they intend to live, creates more problems than it might be expected to solve. For example, immigration accounts for approximately 75% of Canada’s population growth.[1] There are a large number of work permit holders who, while in the process of becoming a Canadian citizen, may have been banned from purchasing a home in Canada until they may be able to become a citizen. While previously there were a number of restrictions on work permit holders purchasing property in Canada, these were amended. Now, as long as those individuals have at least 183 days left on their work permit, and have not purchased more than one residential property, they are excepted from the ban under the Act.

Conclusion

Overall, these amendments resolve a number of concerns that industry members and non-Canadians had about the Act. There will still be challenges, questions and concerns. The relative recency of the Act leaves room for improvement and clarification on an ongoing basis. If you have any questions about this Act, or its potential implications, contact one of our qualified real estate lawyers today.