The Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act“) and the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations (the “Regulations”) (collectively, the “Legislation”) came into force on January 1, 2023 and affect contracts for the purchase of residential property entered into after this date. The Act prohibits non-Canadians from purchasing residential property in Canada, except in prescribed circumstances. The Act represents one of the federal government’s measures aimed at increasing housing supply, controlling soaring house prices, and curbing foreign investor speculation. The Legislation is set to be repealed two years after coming into force.
Under section 6 of the Act, non-Canadians that violate the prohibition on purchasing residential property and any person or entity that knowingly assists or attempts to assist a non-Canadian in contravening the prohibition are guilty of an offence and subject to a fine of up to $10,000. If a corporation or entity commits an offence, any individuals who directed, authorized, assented to, acquiesced in, or participated in the commission of the offence, including officers, directors, agents, mandataries, senior officials, or individuals with managerial or supervisory functions, may also be liable for the offence whether or not the corporation or entity has been prosecuted or convicted.
Scope of the Act
The Act applies to “non-Canadians”, which are defined in section 2 of the Act as:
- individuals who are not a Canadian citizen, a person registered as an Indian under the Indian Act, or permanent residents;
- corporations that are incorporated outside of Canada or a Canadian province; and
- corporations incorporated in Canada or a province whose shares are not listed on a stock exchange in Canada and are controlled (directly or indirectly, in fact or with 3% or more equity ownership/voting rights) by a person referred to in the previous two categories.
Section 4 of the Act carves out exemptions for certain individuals and entities from the prohibition on purchasing residential property. Section 4(2)(a) of the Act exempts temporary residents within the meaning of the Immigration and Refugee Protection Act and protected persons who satisfy the prescribed conditions set out in section 5 of the Regulations. These conditions include students enrolled in designated learning institutions that have filed income tax returns in Canada for the past five years, have been physically present in Canada for a minimum of 244 days in each of the past five years, have a purchase price that does not exceed $500,000, and have not purchased more than one residential property. Work permit holders or persons authorized to work in Canada full time are also exempt provided they have worked in Canada for a minimum period of three years in the past four years preceding the purchase, have filed all required income tax returns for a minimum of three of the four taxation years preceding the purchase, and have not purchased more than one residential property.
Non-Canadian individuals who purchase residential property in Canada with a spouse or common-law partner who is a Canadian citizen or permanent resident, are also exempt under section 4(2)(c) of the Act. Additionally, section 4(2)(b) of the Act provides an exemption for refugees, and section 4(2)(d) exempts prescribed persons or entities detailed in section 6 of the Regulations, such as diplomats, foreign nationals with valid temporary resident status and persons with an eligible claim for refugee protection.
Types of Property Covered
The Act prohibits non-Canadians from purchasing “residential property”, defined in section 2 of the Act as any “real property or immovable” in Canada that is a detached house or similar building containing no 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, a separate division of real property or immovable owned apart from any other unit in the building. Section 3(2) of the Regulations indicates that vacant land that is zoned for residential or mixed use and which is located in a census agglomeration or a census metropolitan area is also included under the definition of residential property.
Section 3(1) of the Regulations provide an exclusion from the definition of residential property such that property that is located in an area of Canada that is not within either a census agglomeration or a census metropolitan area is not included within the definition of residential property. Additionally, multi-unit residential buildings with more than three dwelling units appear to be exempt.
Builder, Seller, & Broker Considerations
Although the Legislation does not specifically require sellers to take any particular action, the offence described in section 6(1) of the Act has a broad scope that could potentially impose liability against builders, sellers and real estate brokers. Therefore, it is important to make inquiries to avoid a circumstance where a property is sold to a non-Canadian buyer.
Builders are advised to revise their standard agreements of purchase and sale for residential property, as defined by the Act, to include assurances from buyers that they are not non-Canadians under the Act, and ensure that these agreements restrict assignments to non-Canadian buyers. The builder’s sales team should also be familiar with the Act and be able to make reasonable inquiries into the Canadian status of buyers, including verifying the status of the shareholders of corporations to ensure they are not selling to non-Canadians. To further ensure compliance with the Legislation, builders are advised to collect a copy of all buyers’ identification to verify that they are not a non-Canadian under the Act. Acceptable identification would include a Canadian passport, Canadian citizenship card or certificate, Canadian permanent resident card, or a Certificate of Indian Status card. In the event that a buyer is unable to produce the appropriate identification, builders are advised not to proceed with the transaction until they are able to confirm whether an exception applies that would permit the transaction.
To protect themselves and their clients, brokers representing sellers of resale properties should consider including a representation and warranty from the buyers in all contracts requiring buyers to confirm that they are not non-Canadians under the Act. This can be achieved by adding a representation into the “Additional Terms” section of the standard AREA contract requiring buyers to make such a confirmation. By including specific terms in purchase and sale agreements that address the requirements of the Act, builders, sellers, and brokers can create a due diligence defense that may protect them from liability in the event that a non-Canadian purchases their residential property and, ideally, avoid a transaction that violates the Act entirely.
In order to avoid potential liability under the Act, brokers representing buyers in a transaction should verify the Canadian status of their clients at the outset by collecting a copy of their client’s identification, as noted above, which confirms they are not a non-Canadian. Similarly, if a buyer is unable to provide appropriate identification, brokers are advised not to proceed with a transaction before confirming whether an exception applies that would permit the transaction.
It is important for builders, sellers and brokers to take proactive steps to comply with the Legislation in order to avoid potential fines under the Act. Making inquiries, inserting contractual terms and verifying identification are all recommended steps that should be taken in order to avoid a prohibited transaction and provide a potential due diligence defence in the event that a prohibited transaction occurs.
Prepared by Tariq Jomaa and Grace Facehun, Barristers and Solicitors
This memorandum is for informational purposes only, does not constitute legal advice or an opinion, and does not create a solicitor-client relationship. This is an overview and is not intended to be a complete and exhaustive explanation of the concepts covered. This information may become inaccurate based on passage of time or changes in the law. Nothing herein should be relied upon without seeking the advice of a lawyer.
