Corporate aspects of the amendments to the Prohibition on the Purchase of Residential Property by Non-Canadians Act Regulations (the “Act” and “Regulations”)

By Mark D. Hazlett

Over the past few months, we have posted several articles on the Act and its implications (see original article, update 1 and update 2). To expand on our most recent update, there are two changes to the Regulations that could impact corporations or other entities such as Real Estate Investment Trusts (REITs) that may have been considering purchasing property that is covered by the Act and Regulations:

Threshold for foreign control

The threshold of foreign control that subjects a corporation to the provisions of this act has been increased from 3% to 10%.  Control is still defined very broadly under the Regulations, and would mean any ownership, directly or indirectly, that represents either 10% of the value of the equity or 10% of the voting rights. This brings these Regulations more in line with other areas of Canadian law regarding foreign ownership, including the Underused Housing Tax Act’s definition of “specified Canadian corporation”. 

This would likely be interpreted to mean that the ban applies to situations where a corporation has:

1. Non-Canadian ownership, directly or indirectly, of shares that represent 10% or more of the voting rights of the corporation;
2. Non-Canadian ownership, directly or indirectly, that represent 10% or more of the value in the equity of the corporation (whether or not there are voting rights attached);
3. Non-Canadian ownership or control, directly or indirectly of 10% or more of the votes on the board of directors; or
4. A non-Canadian person who is a chairperson or other officer of the corporation.

Indirect control would mean in all of these cases, a corporate hierarchy where a non-Canadian person or entity exercises more than 10% control at any level.

Prescribed non-Canadian entities

In addition to the entities identified by the act itself, the Regulations continue to prescribe some additional cases where an entity is non-Canadian:

The Regulations state that any entity which is formed under laws other than those of Canada or one of its provinces is non-Canadian (regardless of its ownership or control). This continues to be the case from the initial form of the Regulation.

The Regulation, in its initial form also prescribed that any entity formed under the laws of Canada or a province and controlled by a non-Canadian pursuant to the above was non-Canadian. However, the Regulation has been relaxed somewhat to clarify that a Canadian entity whose shares or ownership interests are listed on a stock exchange in Canada for which the appropriate designation by the Minister of Finance is in effect is no longer prescribed to be non-Canadian. This language in its initial form was a barrier to entities such as REITs to be able to operate.

Conclusion

Overall, while a number of issues with the ban have been alleviated, clarified, or resolved with the most recent amendment to the Regulation, the threshold for foreign ownership of residential real estate through a corporation or other vehicle is still severely limited by the Act and Regulation.

If you have any questions about this Act and Regulation, or its potential implications to your business entity, please contact me, Mark Hazlett at mhazlett@sorbaralaw.com