By Chris Sharpe and Manveer Sall

The federal government has introduced legislation that bans the purchase of residential real estate by non-Canadians.  The Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) comes into force on January 1, 2023, and is stated to stay in force for a period of two years.

Buyers and sellers of residential property in Canada, together with their lawyers, notaries, and real estate agents, should make themselves aware of the prohibitions contained in the Act, the penalties for contravening the Act, and consider changes that may be required to purchase and sale agreements, closing documents, and record-keeping procedures related to their real estate transactions – and whether their transactions are even permitted at all.

Breaking Down the Act – Who is Prohibited from Purchasing Residential Property

Section 4(1) is the key effective provision of the Act, prohibiting a “non-Canadian” from purchasing, directly or indirectly, any residential property. The Act defines “non-Canadian” as:

(a) an individual who is neither a Canadian citizen nor a person registered as an Indian under the Indian Act nor a permanent resident;

(b) a corporation that is incorporated otherwise than under the laws of Canada or a province;

(c) a corporation incorporated under the laws of Canada or a province 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); and

(d) a prescribed person or entity.

Importantly, “Control” of a corporation is not yet defined in the Act, but is to be defined by yet to be passed regulations.

Section 4(2) goes on to narrow the scope of the prohibition by excluding the following persons from the effect of Section 4(1):

(a) a temporary resident within the meaning of the Immigration and Refugee Protection Act who satisfies prescribed conditions;

(b) a protected person within the meaning of subsection 95(2) of the Immigration and Refugee Protection Act;

(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, person registered as an Indian under the Indian Act, permanent resident or person referred to in paragraph (a) or (b); or

(d) a person of a prescribed class of persons.

A temporary resident may include a foreign national who is permitted to enter or remain in Canada as a student, worker, or temporary resident permit holder.

Interestingly, these exceptions appear to open the door for temporary foreign workers and international students to continue purchasing residential real estate in Canada, provided they satisfy the (yet to be) prescribed conditions.

Breaking Down the Act – What is Residential Property

The prohibition on foreign buyers under the Act applies to “residential property”. Residential property is defined in the Act as, “any real property or immovable, 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.”

A “dwelling unit” is defined in the Act as “a residential unit that contains private kitchen facilities a private bath and a private living area.”

These definitions raise a number of interesting considerations, and types of properties that are excluded from the application of the Act. For example, a detached house with 4 or more dwelling units would fall outside the scope of the definition. So too do apartment buildings that are not part of a strata development, given that, while there are a number of dwelling units, they are not separately owned apart from the other units in the building.  Lastly, given the rise in the number of strata corporation wind-ups occurring throughout B.C., given that title to the strata corporation assets (being the strata lots, common property and common assets) tends to be consolidated prior to conveyance to the purchaser, these too may be exempted under the current language of the Act.

Breaking Down the Act – Penalty for Contravening the Act

Section 6(1) of the Act states that every non-Canadian, as well as any other person who counsels, induces, aids, or abets or even attempts to counsel, induce, aid or abet a non-Canadian to purchase a residential property in Canada 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 extends the liability and offence to the following persons that direct, authorize, assent, or acquiesces in, or participates in the commission of the offence:

(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.

Lawyers, notaries public, real estate agents and others involved in facilitating real estate transactions should consider the application of these penalties to their activites.

Comparison with the B.C. Additional Property Transfer Tax  

For those familiar with British Columbia’s Additional Property Transfer Tax (the “Foreign Buyer’s Tax”) on foreign entities, you might be wondering how its definition of a “foreign entity”, to which the Foreign Buyer’s Tax applies, compares to a “non-Canadian” who is prohibited from buying residential property under the Act.

The Foreign Buyer’s Tax applies to foreign entities, which includes both foreign nationals and foreign corporations. A foreign national means a person who is not a Canadian citizen or a permanent resident, and includes a stateless person. A foreign corporation is a corporation that is one of the following:

(a) a corporation that is not incorporated in Canada;

(b) unless the shares of the corporation are listed on a Canadian stock exchange, a corporation that is incorporated in Canada and is controlled by one or more of the following:

(i) a foreign national;

(ii) a corporation that is not incorporated in Canada;

(iii) a corporation that would, if each share of the corporation’s capital stock that is owned by a foreign national or by a corporation described in paragraph (a) of this definition were owned by a particular person, be controlled by the particular person;

Therefore, the ban on foreign buyers under the Act is less broad than the application of the Foreign Buyers Tax insofar as it does not prohibit the purchase of residential real estate by those parties exempted pursuant to Section 4(2) of the Act (including temporary residents, international students and temporary foreign workers).  In contrast, the Foreign Buyer’s Tax in B.C. has a broader scope as it applies to all individuals who are not Canadian citizens or permanent residents, including temporary residents.

Constitutional Implications

One potential issue that might arise with the Act is whether a party may raise a constitutional challenge by asserting that it touches on matters of provincial jurisdiction. Under s. 92 of the Constitution Act, 1867, property rights are within the exclusive powers of provincial legislatures.

The federal government may rely on their jurisdiction over criminal law to defend such a claim, but it of course remains to be seen whether any party mounts a constitutional challenge to the Act.

 Conclusion

The two-year prohibition on the purchase of residential property by non-Canadians will take effect on January 1, 2023. There are still many unknowns with respect to how and to whom the Act will apply. We anticipate that the federal government will provide further guidance about the Act in due time, at which point, more updates from the team at Clark Wilson will follow.