Canadian Government Prohibits Non-Canadians from Purchasing Residential Real Estate

The federal government has recently passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act[1] (the “Act”) for the stated purpose of addressing the problem of rapidly increasing housing prices across Canada. The Act came into force on January 1, 2023, and will be in effect for at least two years. In conjunction with the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations[2] (the “Regulations”) the new legislation sets out a strict prohibition regarding the purchase of residential property by a “non-Canadian”. It affects contracts for purchase and sale that come into effect on or after January 1, 2023.

The Act sets out significant penalties for contraventions. In particular, it is critical for any professional working with real estate purchasers to understand what constitutes “Residential Property” and who is a “non-Canadian”. Specific attention must be paid to the provisions affecting corporations and corporate ownership.

Who is a Non-Canadian?

Section 2 of the Act defines “Non-Canadians” as:

1. an individual who is not
   • A Canadian citizen
   • A person registered as an Indian under the Indian Act or
   • A permanent resident
2. a corporation that is incorporated outside of Canada;
3. a corporation incorporated in Canada whose shares are not listed on a stock exchange in Canada that is “controlled” by a person referred to in paragraph (1) or (2)  and
4. a prescribed person or entity.

Moreover, the Regulations define a "prescribed entity" as:

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 referred to in paragraph (1) or controlled by a person referred to in paragraph (1), (2) or (3) of the definition of non-Canadian in section 2 of the Act[3].

Further, the definition of “control” with respect to a corporation or entity has a very low threshold. Section 1 of the Regulations states:

1. direct or indirect ownership of shares or ownership interests of the corporation or entity representing 3% or more of the value of the equity in it, or carrying 3% or more of its voting rights; or
2. control in fact of the corporation or entity, whether directly or indirectly, through ownership, agreement, or otherwise.

What constitutes “Residential Property”?

“Residential property” has a very specific definition in the Act. It includes:

• a detached house or similar building containing not more than three dwelling units;
• 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 owned apart from any other unit in the building;
• the proportion of any common property or the appurtenances[4] to the house or 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; and,
• any property, including vacant land, that is zoned for residential use or mixed use and that is located within a census agglomeration or census metropolitan area[5].

The prohibition does not apply in certain circumstances:

Importantly, the Regulations includes a number of exemptions regarding the purchase of residential property. A prohibited purchase does not include:

• the acquisition by an individual of an interest or a real right resulting from death, divorce, separation or a gift;
• the rental of a dwelling unit to a tenant for the purpose of its occupation by the tenant;
• the transfer under the terms of a trust that was created prior to the coming into force of the Act; or
• the transfer resulting from the exercise of a security interest or secured right by a secured creditor.[6]

Exceptions under the Act:

The Act also provides limited exceptions for:

• temporary residents and protected persons who fall within the meaning and highlighted sections of the Immigration and Refugee Protection Act; and
• non-Canadians who purchase residential property with their spouse or common-law partner, if the spouse or common-law partner qualifies under (1) above.[7]

Additionally, certain temporary residents are exempt from the applicability of the Act and may purchase residential property if they are students enrolled in a program of authorized study at a designated learning institution, or if they hold a work permit, as defined in the Immigration and Refugee Protection Regulations. However, to fall within the exemption these individuals also have to:

• satisfy the prescribed requirements regarding tax filings;
• have been physically located in Canada for a certain period;
• not have already purchased a residential property; and
• keep the residential property purchase within certain monetary limits.[8]

Consequences for Contravention: What does this mean for purchasers or the lawyers, real estate agents, brokers, and other professionals who work with purchasers?

If a non-Canadian is found guilty of purchasing residential real estate, they will be liable on summary conviction to a fine of not more than $10,000. Further, the Federal Government could apply to the superior court (in Alberta, the Court of King’s Bench) to force the non-Canadian to sell the property.

However, the non-Canadian remains legally bound to perform their obligations under agreements that contravene the Act. This is because, the Act does not undermine the validity or enforceability of contracts of purchase and sale of real estate.[9] This means it is extremely important to determine if a purchaser qualifies to purchase the property before they enter into any purchase agreements. As a result, realtors and brokers will especially need to be up to date on the legislation.

If an individual is found guilty of counseling, inducing, aiding or abetting a non-Canadian to purchase residential real estate in Canada, or attempting the foregoing knowing that the non-Canadian is prohibited under the Act, they will be liable on summary conviction to a fine not more than $10,000.00. There are no exceptions in the Act or its Regulations for lawyers, real estate agents, brokers, or other professionals.

There are also significant penalties for certain people involved with a corporation or entity that commits an offence under the Act. Regardless of whether the corporation or entity has been prosecuted or convicted, the Act will pierce the corporate veil and hold the following people liable:

• an officer, director, or agent or mandatory of the corporation or entity;
• a senior official of the corporation or entity; or
• any individual authorized to exercise managerial or supervisory functions on behalf of the corporation or entity.[10]

It is still unclear which department of the Federal Government will be responsible for bringing these penalties or applying for the sale of the properties purchased in contravention of the Act.

Main Takeaway:

While CHMC[11] affirms that “it is the responsibility of non-Canadian buyers themselves to ensure they are eligible to purchase a residential property while the Act is in force,” any professional working with real estate purchasers in Canada has an obligation to familiarize themselves with the prohibitions under the Act and the Regulations so they may take steps to comply with the legislation.

Given the broad scope of the Act, professionals involved in the real estate industry may wish to include provisions in purchase contracts to protect themselves from liability. Moreover, reasonable inquiries to confirm the property's nature, the purchaser's citizenship status, and the property's location are imperative for realtors, lawyers and potentially even lending institutions. This will be especially complicated for private corporations where the necessary investigations will need to occur in relation to all the shareholders.

If you have any questions regarding the above, any of the members of our McLennan Ross Corporate Commercial Law team would be happy to discuss.