On January 1, 2023, the Canadian government enacted the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”), which aims to prevent Non-Canadians from purchasing certain residential property by imposing steep consequences for not only the Non-Canadian purchaser, but also anyone who assists them. There are, however, many exceptions which narrow the scope of that prohibition.
This article aims to briefly clarify the types of transactions that commonly fall under the prohibition, and outline the consequences that follow.
The General Framework
Only transfers that meet all three of the following criteria are prohibited:
- The acquisition is by a Non-Canadian,
- The acquisition involves Residential Property, and
- The acquisition is a “purchase.”
Who is a Non-Canadian?
A Non-Canadian individual includes those who are not Canadian citizens, Permanent Residents, or Indians as defined under the Indian Act. Some of the most common exceptions include the following:
- Certain temporary residents and protected persons under Canada’s immigration rules, and
- Non-Canadians who purchase property with a married or common law spouse who is not a Non-Canadian.
A Non-Canadian corporation commonly includes those that are not incorporated in Canada, and corporations that are controlled by Non-Canadians. Control includes direct or indirect ownership of shares worth at least 10% of the value of equity in the company, or 10% or more of the corporation’s voting rights. Control also includes “control in fact” – which means direct or indirect control through ownership, agreement, or otherwise.
What is Residential Property?
Residential Property is real property in Canada that:
- Is a detached house, and contains no more than three dwelling units,
- Is part of a building such as a condominium or townhouse, or
- Has no dwelling but is zoned residential or mixed use residential.
Notably, Residential Property does not include real estate located outside of a Census Agglomeration or Census Metropolitan Area. Generally speaking, these areas refer to not only urban centres, but also smaller suburban centres. As a result of the geographical limitations, cottage properties are usually not caught by the Act. However, you should consult a legal professional to ascertain whether a property falls inside of the relevant area.
Is the acquisition a “purchase”?
A prohibited “purchase” includes any acquisition of legal or beneficial interest. Beneficial interest refers to non-registered ownership interests as is common when a trustee acquires property on behalf of a beneficiary.
A “purchase” does not include acquisitions resulting from death (such as an inheritance), divorce, separation, or gift. Similarly, it doesn’t prevent transfers under a trust arrangement created prior to January 1, 2023, or transfers resulting from the exercise of a security interest.
The prohibition specifically excludes purchases under which a Non-Canadian becomes liable under an agreement of purchase and sale of the residential property before January 1, 2023.
The Act imposes a fine of no more than $10,000.00 on any person who contravenes the prohibition and also on anyone who assists another in contravening the prohibition, knowing that the acquisition is prohibited.
Notably, any contravening “purchase” will not be prevented or reversed; however, the property may be ordered sold under certain conditions.
These consequences could have the effect of substantially limiting any financial gain for the person contravening the Act, but also puts any involved real estate professional (such as agents or real estate lawyers) on high alert so as not to be personally liable for any penalties.
If you are concerned that a potential transaction may fall under the prohibition, it would be prudent to consult with an experienced real estate lawyer to avoid any unintended consequences.
At Hummingbird Lawyers LLP, our trusted team of real estate lawyers is always up-to-date on the latest changes in the law and can give you informed advice on how to minimize your risk.
For more information, please contact Hummingbird Lawyers LLP. Our team is always available to help.