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

Prohibition on the Purchase of Residential Property by Non-Canadians Regulations (the “Regulations”) came into force on January 1, 2023. The Regulations provide further details on the scope of the application of and exemption from the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”), which came into force on the same date. For an overview of the Act, please see here.

The Scope of Prohibition 

The Act prohibits a “non-Canadian” from “purchasing”, directly or indirectly, any “residential property” (the “Prohibition”), and the Regulations added to the Act’s definition of each of these key terms.

1. Non-Canadian and definition of “control” 

The Regulations clarify that a Non-Canadian includes the following:

  1. an entity formed otherwise than under the laws of Canada or a province; and
  2. an entity formed under the laws of Canada or a province and controlled by an entity referred to in paragraph (a) found above or controlled by a person referred to in paragraph (a), (b) or (c) of the definition of “non-Canadian” found in section 2 of the Act (which paragraphs are discussed here),

whereas the definition of “control” has a very low threshold, such that control can be established if there is direct or indirect ownership of 3% or more of the voting rights / value of the equity of a corporation or entity and/or if there is direct or indirect control in fact through other types of ownership or agreements.

This means that a company incorporated federally or provincially within Canada, is still a Non-Canadian under the Act and the Regulations if¹:

  1. 3% or more of its voting shares or value of equity are directly or indirectly owned by a company incorporated outside of Canada (a “Foreign Company”);
  2. 3% or more of its voting shares or value of equity are directly or indirectly owned by an individual who is neither a Canadian citizen, permanent resident or a person registered as an Indian under the Indian Act (a “Foreign Individual”); or
  3. 3% or more of its voting shares or value of equity are directly or indirectly owned by another company that is also incorporated federally or provincially within Canada, but at least 3% of that company’s voting shares or value of equity are directly or indirectly owned by a Foreign Company or a Foreign Individual.

2. Purchase 

The Regulations have clarified that purchases prohibited by the Act do not include the following types of transfer of property interest:

  1. the acquisition by an individual of an interest or a real right resulting from death, divorce, separation or a gift;
  2. rental of a dwelling unit to a tenant for the purpose of its occupation by the tenant;
  3. the transfer under the terms of a trust that was created prior to the coming into force of the Act (January 1, 2023); and
  4. the transfer resulting from the exercise of a security interest or secured right by a secured creditor.

The fact that a transfer resulting from the exercise of a security interest or secured right by a secured creditor is not a purchase under the Act means that lenders or other mortgage lending entities (which may fall under the definition of Non-Canadian even if they are incorporated in Canada, as seen above) will not be subject to the Prohibition where they gain possession of a Residential Property through enforcement of their security upon a borrower’s default.

3. Residential Property

(i) a property that is located in an area of Canada that is not within either a census agglomeration² or a census metropolitan area³ is not subject to the Prohibition; and

(ii) a property with all of the following three characteristics is subject to the Prohibition:

  1. a. does not contain any habitable dwelling;
  2. b. zoned for residential use or mixed use*; and
  3. c. located within a census agglomeration or a census metropolitan area.

* Note that “mixed use” is not defined in the Regulations, but presumably includes any property zoned for residential use along with any other type of use such as commercial or industrial.

Persons Exempt from the Prohibition 

The Act states that a “temporary resident” is exempt from the Prohibition even if they are a Non-Canadian. A foreign student or a foreign worker may be a “temporary resident” if and only if they meet all the specific requirements listed in s. 5 of the Regulations. The requirements relate to filing of income tax returns, length of physical presence in Canada, purchase price of the Residential Property, etc. (for details, please review s. 5).

In accordance with s. 4(2)(d) of the Act and s. 6 of the Regulations, the Prohibition does not apply to certain types of foreign nationals (including, among others, those who have made a claim for refugee protection and those holding a passport that contains a valid diplomatic or consular acceptance).

The Prohibition does not apply in situations where it is incompatible with the rights recognized and affirmed by s. 35 of the Constitution Act, 1982, which rights are the existing Aboriginal and treaty rights of the Aboriginal peoples of Canada.

Court Order 

The Act provides that the superior court of the province in which the Residential Property is located may order sale of that Residential Property upon hearing an application from a federal minister. The Regulations have posed certain conditions with respect to when and how such an order should be made by a superior court.

A court order may only be made if the following conditions are met:

(a) the non-Canadian is the owner of the residential property at the time the order is made;

(b) notice has been given to every person who may be entitled to receive proceeds from the sale; and

(c) the superior court of the province is satisfied that the impact of the order would not be disproportionate to the nature and gravity of the contravention, the circumstances surrounding the commission of the contravention and the resulting conviction.

The Regulations also provide for an order of priority for distribution of the proceeds of the sale, as seen below. Consistent with what was made clear in the Act, the Non-Canadian purchaser cannot receive proceeds greater than the purchase price they paid.

(a) the payment of the costs of the sale, including the costs incurred by the Minister in bringing the application for the order and any unpaid fines by the non-Canadian under the Act;

(b) the payment of those, other than the non-Canadian, who are entitled to receive the proceeds of the sale in amounts and according to priorities that the superior court may determine;

(c) the repayment of the non-Canadian of an amount that is not greater than the purchase price they paid for the residential property; and

(d) the payment of any amount remaining to the Receiver General for Canada.

¹ These examples are demonstrative and are not an exhaustive list of scenarios in which a company incorporated in Canada may be determined to be a Non-Canadian under the Act and the Regulations. 

² “census agglomeration” and “census metropolitan area” are defined in the Regulations to have meanings in the Statistics Canada document entitled Standard Geographical Classification (SGC) 2021. Definitions are available here, and a map available for download here (both made available by Statistics Canada). 

³ Ibid. Census metropolitan areas include Toronto, Montreal, Vancouver, Ottawa-Gatineau, Calgary, Edmonton, Quebec, Winnipeg, Hamilton, among others.

 

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