Amendments to Non-Canadian Property Purchase Regulations

By Douglas J. Conolly & Zahra Tahsili

The Prohibition on the Purchase of Residential Property by Non-Canadians Act, S.C. 2022, c. 10, s. 235 (the “Act”) and the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations, SOR/2022-250 (the “Regulations”) came into force on January 1, 2023, preventing non-Canadians from purchasing residential property in Canada for two years.

On the Minister of Housing and Diversity and Inclusion recommendation, the Regulations Amending the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations, SOR/2023-66 (the “Amending Regulations”) were announced. These changes are effective from March 27, 2023.

In this Article, while we give an overview of the Act and its Regulations (collectively referred to as the “Prohibition Legislation”), the focus is on exemptions the Prohibition Legislation has considered for some foreign national individuals whose status in Canada is referred to as “temporary residents” under the Immigration and Refugee Protection Regulations, SOR/2002-227 (the “Immigration Regulations”).

1) Prohibition Legislation and Recent Amendments

The primary provision that forbids “non-Canadians” from acquiring residential properties is Section 4(1) of the Act. This section explicitly states that a non-Canadian is prohibited from directly or indirectly purchasing any residential property.

As we delve into the above-underlined legal terms, we address four significant changes that have been introduced through the Amending Regulations. These changes include expanding eligibility for work permit holders, exempting vacant land from the Prohibition Legislation, introducing exceptions for development purposes, and adjusting control thresholds for corporations.

2) Who are “non-Canadians”?

Under the Prohibition Legislation¹, “non-Canadian” defines as:

a. an individual who is not a Canadian citizen, a permanent resident, or a person registered as an Indian under the Indian Act;
b. a corporation or an entity that is either incorporated outside Canada; or inside Canada, whose shares are not listed on a stock exchange in Canada and is controlled by a person referred to in the above paragraph (a) and by a corporation or an entity outside Canada in the following manners:

• direct or indirect ownership of shares or ownership interests of the corporation or entity representing 10% or more of the value of the equity in it, or carrying 10% or more of its voting rights; or
• control in fact (de facto control) of the corporation or entity, whether directly or indirectly, through ownership, agreement or otherwise.

It is important to highlight that the term “entity” encompasses not only corporations but also other types of business structures. Accordingly, all forms of business entities, including partnerships, sole proprietorships, and trusts, are subject to the Prohibition Legislation.

Prior to the implementation of the Amending Regulations, the criterion for establishing control over a corporation or entity was set at 3%. However, this threshold has now been raised to 10%. Despite this alteration, it remains essential for property lawyers and notaries to thoroughly examine the capital structure as well as the direct or indirect control exerted by corporate or entity purchasers before engaging in any conveyancing.

Exceptions

The Prohibition Legislation includes exceptions for certain non-Canadian nationals. These exceptions are as follows:

a. Temporary residents studying in Canada, if they:

• are enrolled in an authorized study program at a designated learning institution;²
• have filed income tax returns for five years preceding the year of purchase of the property;
• have been physically present in Canada for a minimum of 244 days in each of the past five years, preceding the purchase of the property; and
• purchase a property worth up to $500,000; and
• have not purchased more than one residential property in Canada.³

Holding a study permit and studying in a designated learning institute alone does not qualify international students to buy a residential property in Canada. As discussed above, there are tax filing requirements and a property value cap.

b. Work permit holders, if they:

• have at least 183 days of validity remaining on their work permit or authorization at the time of purchase; and
• have not purchased more than one residential property.⁴

One significant amendment introduced is the expansion of eligibility for work permit holders. Previously, the Prohibition Legislation required work permit holders to work full-time for at least three years in Canada and file income tax returns for three of the four taxation years, preceding the year the purchase is made.

c. Refugees, if they:

• have been given refugee protection or are a protected person under the Immigration and Refugee Protection Act, 2001 (the “Refugee Act”).⁶

d. Refugee claimants and individuals fleeing international crises, if they:

• have claimed for refugee protection, which has been found eligible and referred to the Refugee Protection Division in accordance with the Refugee Act; or
• have received temporary resident status based on humanitarian public policy considerations.⁷

e. Accredited members of foreign missions in Canada, if they:

• hold a passport with a valid diplomatic, consular, official, or special representative acceptance issued by the Chief of Protocol of Canada.⁸

f. Non-Canadian spouses and common-law partners, if they:

• purchase residential property in Canada jointly with their spouse or common-law partner who is a Canadian citizen, Indian Act registered, permanent resident, or non-Canadian partner to whom the prohibition does not apply.⁹

3) What constitutes a “Purchase”?

The act of acquiring a legal or equitable interest or a real right in a residential property, whether with or without conditions, is considered a purchase and falls under the prohibition.¹⁰

However, Section 4(2) of the Regulations outlines several exceptions to this prohibition, which are as follows:

(a) the acquisition by an individual of an interest or a real right resulting from death, divorce, separation or a gift;
(b) the rental of a dwelling unit to a tenant for their occupation;
(c) the transfer of a residential property under the terms of a trust that was established prior to the enactment of the Act;
(d) the transfer that occurs as a result of the exercise of a security interest or secured right by a secured creditor; or
(e) the acquisition by a non-Canadian of residential property for the purposes of development.¹¹

Even though the exception mentioned in paragraph (c) allows for the transfer of a residential property under an existing trust created before January 1, 2023, it is important to note that if a new beneficiary acquires a beneficial interest in a residential property under that trust, it will still be subject to the prohibition, notwithstanding that the trustee remains the registered owner on title.

Moreover, if the non-Canadian becomes liable or assumes liability under an agreement of purchase and sale for a residential property before January 1, 2023, they are not subject to the Prohibition Legislation.¹²

4) What does constitute “Residential Property”?

Section 2 of the Act defines “Residential Property”. According to Section 3(1) of the Regulations, properties located in areas of Canada that are not within a Census Agglomeration (CA) or a Census Metropolitan Area (CMA) are excluded from the Prohibition Legislation.

CA and CMA are defined by the Statistics Canada document entitled “Standard Geographical Classification (SGC) 2021”. Some factors, such as population, are determinative to categorize an area as a CMA or CA. A CMA must have a total population of at least 100,000 or a core population of at least 50,000, and a CA must have a core population of at least 10,000.¹³

It should be noted that the classification of areas as CAs or CMAs can change over time due to factors such as population growth and the integration of municipalities. So, before proceeding with any conveyancing, if there is any uncertainty regarding whether a residential property is excluded from the Prohibition Legislation, the most recent data from Statistics Canada on CAs and CMAs should be consulted.

By virtue of the Amending Regulations, Section 3(2) of the Regulations has been repealed. As a result, vacant lands designated for residential and mixed-use purposes are no longer subject to the previous prohibition. This means that non-Canadians can now purchase and utilize such vacant land for residential development or other purposes.

5) Offence

Any non-Canadian who contravenes the Prohibition Legislation, as well as any person or entity who counsels, induces, aids, abets, or attempts to engage in such actions, resulting in the non-Canadian purchasing residential property directly or indirectly, is deemed guilty of an offence. Upon summary conviction, they are liable to a fine not exceeding $10,000. Moreover, the court can force the sale of the property as a consequence of the violation.

Furthermore, the officers, directors, agents of corporations or entities, or any individual authorized to exercise managerial or supervisory functions on behalf of the corporation or entity can be held responsible and face the prescribed consequences for their involvement in the violation.¹⁴

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[1] Section 2 of the Act and Sections 1 and 2 of the Regulations.

[2] Designated learning institution has been defined in Section 211.1 of the Immigration Regulations.

[3] Section 5(a) of the Regulations.

[4] Section 5(b) of the Regulations.

[5] A protected person is a person on whom refugee protection is conferred, and whose claim or application has not subsequently been deemed to be rejected.

[6] Section 6(b) of the Regulations.

[7] Section 6(c) of the Regulations.

[8] Section 6(a) of the Regulations.

[9] Section 4(2)(c) of the Act.

[10] Section 4(1) of the Regulations.

[11] In a move to attract investment and foster economic growth, the Amending Regulations introduce an exception that allows non-Canadians to purchase residential property specifically for development purposes.

[12] Section 4(5) of the Act.

[13] Census metropolitan area (CMA) and census agglomeration (CA), Source: https://www12.statcan.gc.ca/census-recensement/2021/ref/dict/az/Definition-eng.cfm?ID=geo009

[14] Sections 6 and 7 of the Act.

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