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Federal Government Imposes Temporary Ban on the Purchase by Foreign Purchasers of Residential Properties in Canada

Any individual or corporate foreign purchaser that is interested in purchasing real estate in Canada should be aware of the upcoming Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”), which will come into force on January 1, 2023. The Act prohibits certain foreign individuals / entities from purchasing residential properties in Canada and imposes monetary penalties on those involved in such purchases (although the sale of the property itself will still be valid).

Some of the terms in the Act remain to be further defined. The regulations to the Act (the “Regulations”) have not yet been published, but a Consultation Paper clarifies some of these terms as of now.

 

Summary

  • Consequences of violating the Act:
    • a purchase prohibited under the Act will continue to be valid;
    • contravening individuals/entities will be 1) guilty of a summary offence and 2) liable to pay a fine of less than $10,000; and
    • the court may also make an order to sell the property, for which the foreign purchaser cannot receive any profit.
  • The scope of liability is wide: any person that assists or attempts to assist with the prohibited purchase, while knowing that the Act applies, may be subject to the fine.
  • The Act is federal and applies throughout Canada.
  • The Act will be in place for two years, starting on January 1, 2023.
  • The Regulations will provide more details with respect to the penalties, the classes of properties targeted by the Act and the classes of people/entities that are prohibited (or exempted from such prohibition) to purchase these properties.

 

The Scope of Prohibition

The Act prohibits a “non-Canadian” from “purchasing”, directly or indirectly, any “residential property” (the “Prohibition”), whereas all these terms are defined broadly.

  1. The following persons or entities are Non-Canadians under the Act:
    1. An individual who is neither a Canadian citizen, a permanent resident nor a person registered as an Indian under the Indian Act;
    2. A corporation that is not incorporated in Canada (federally or provincially);
    3. A corporation that is incorporated in Canada, but:
      • it is privately held (i.e. its shares are not listed on a stock exchange in Canada); and
      • it is controlled[1] by the above two categories of non-Canadians; and
    4. other persons or entities to be defined in the Regulations.
  2. According to the Consultation Paper, the definition of “purchase” is intended to be all encompassing. This may mean that conditional contracts, contracts to purchase future interests or any indirect purchase through corporations, partnerships, trusts or other entities, among others, are within the scope of the Prohibition. However, the Consultation Paper clarifies that a lease or a transfer of interest made pursuant to the terms of a trust (if such trust is created prior to January 1, 2023) will not be a “purchase”.
  3. The following types of properties are Residential Properties under the Act:
    • a detached house, containing not more than three dwelling units;
    • a detached building similar to a house, containing not more than three dwelling units;
    • a part of a building that is an independent unit that is intended to be separately owned from other units in the building; and
    • other real properties to be defined in the Regulations,

whereas the Consultation Paper indicates that the vacant lands zoned for residential use may be Residential Properties as well, but the government is seeking feedback on this issue.

 

The Prohibition does not impact any contract entered into before January 1, 2023.

 

Persons Exempt from the Prohibition

The Act states that the following persons, even if they are Non-Canadians (as defined above), are exempt from the Prohibition:

  1. a temporary resident (to be further defined in the Regulations);
  2. a protected person, including a refugee;
  3. a person who purchases a Residential Property with their spouse or common-law partner, who is not a Non-Canadian; and
  4. a person in a class to be defined in the Regulations.

The Consultation Paper states that the Regulations will likely exempt international students and foreign nationals with work permits from the Prohibition as well. It also seems to indicate that a person may become exempt if the application of the Prohibition will lead to undue hardship, although it has not provided more detail on how a person can claim undue hardship.

The Act also makes it clear that the Prohibition does not apply where a foreign state or its agents / representatives purchase residential properties in Canada for diplomatic or consular purposes. However, the Consultation Paper comments that the Prohibition should still apply to these individuals if they make such a purchase in their personal capacity, unless the Regulations provide otherwise.

 

Properties Exempt from the Prohibition

The Consultation Paper clarifies that the government intends to exempt certain recreational properties and inhabitable, vacant lands from the Prohibition.

 

Scope of Liability

The scope of liability is wide. It is not just the Non-Canadian purchaser that may be liable. Any person contravenes the Prohibition if they:

  1. induce, aid or abet a non-Canadian purchaser to purchase a Residential Property in Canada, or make attempts to do so, while knowing that the Prohibition applies to the Non-Canadian purchaser; or
  2. (as person in a managerial position) direct, authorize, or allowed a corporation or entity to purchase a Residential Property in Canada, regardless of whether the corporation or entity itself is actually prosecuted or convicted.

This means that any affiliate, subsidiary, agent, professional advisor or family member, among others, to a Non-Canadian purchaser may be liable under the Act if they assist or attempt to assist the latter’s purchase of a Residential Property in Canada, even if they provide such assistance under a contractual or professional obligation.

 

Penalties

A person or corporation/entity that contravenes the Prohibition is liable to a fine of not more than $10,000.  However, the Act makes it clear that the sale itself will remain valid.

The Act also provides that the superior court of the province in which the Residential Property is located may order sale of that property upon hearing an application from a federal minister. A superior court typically has discretion over the terms of a sale, except the Act states that such court-ordered sale must not allow the Non-Canadian purchaser to receive proceeds greater than the purchase price they paid. The Regulations may impose further restrictions to such court-ordered sale.

 

If you are in need of legal support around interpreting the Act and its application, contact our office.

[1] The Regulations will clarify what it means to have “control”.

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