Prohibition on the Purchase of Residential Property by Non-Canadians Act

The Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) came into force and effect January 1, 2023 and generally prohibits “Non-Canadians” from purchasing, both directly and indirectly, residential property in Canada for a period of two years unless further extended.

The Purpose

The Act and its intended effect is part of a larger effort by the federal government to address rising housing costs in Canada and follows other recent federal tax changes in Canada relating to residential property “flipping” and underused housing as well as provincial and municipal tax changes relating to vacant homes. The purchase of residential property in Canada by non-Canadians has in the preceding years raised concerns about Canadians being priced out of the Canadian housing market.

The Scope

The Act and its regulations defines a “non-Canadian” as:

• persons who are neither citizens of Canada, permanent residents of Canada, nor persons registered as Indian under the Indian Act;
• corporations not incorporated in Canada;
• corporations incorporated in Canada that are not controlled by a citizen of Canada, permanent resident of Canada, or a person registered as Indian under the Indian Act;
• certain other entities formed otherwise than under the laws of Canada or a province; and
• certain other entities formed under the laws of Canada or a province, but controlled by one of the foregoing persons.

The Act and its regulations defines a “residential property” as any real property or immovable located within a census agglomeration or census metropolitan area and that is:

• 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, a separate parcel; and
• land that does not contain any habitable dwelling and is zoned for residential use or mixed use.

With the scope of the Act restricted to census agglomerations and census metropolitan areas, this leaves the majority of rural and recreational properties largely unimpacted by its effect.

The Exemptions

The prohibition on the purchase of residential property will not apply to certain individuals based on conditions established in the Act and its regulations – this includes, amongst others, refugees, certain temporary residents and protected persons under the Immigration and Refugee Protection Act.

Non-Canadians who entered into an agreement of purchase and sale for residential property prior to January 1, 2023 are similarly exempt for that specific transaction.

The Act and its regulations also establish certain ways of acquiring residential property that are not considered a “purchase” and thus not prohibited by the Act – the most relevant examples being an acquisition resulting from death, divorce, separation or a gift.

The Penalties

Non-Canadians that contravene the Act and its regulations are liable on summary conviction to a fine of not more than $10,000.00. This potential penalty further extends to any person that knowingly participates in or facilitates a prohibited real estate transaction, including, potentially, lawyers, brokers and realtors.

It is important to note that the Act does not void or invalidate the purchase and sale transaction in which a contravention of the Act may occur – in other words, the Act will not relieve a party of its contractual obligations relating to the purchase and sale of residential property.

The Impact

The coalescence of the Act with other federal, provincial and municipal housing measures, along with the impact of rising interest rates and slowdown in our economy has created a formidable opponent to the meteoric rise in prices in the Canadian housing market. The impact of the Act specifically on the housing market is still to be determined and analyzed. 

As for the impact on non-Canadians and those involved in real estate transactions: the penalties can be significant and it is important both for non-Canadians and those involved in real estate transactions to remain informed about the Act and its regulations to ensure compliance.

The foregoing should not be considered to be legal advice and should not be relied upon as such. Please consult a lawyer to get advice and an opinion on your unique circumstances.