Federal Government Prohibits Non-Residents From Further Residential Purchases
Please reference the updated article on this topic HERE.
In order for the federal government to implement certain prohibitions, The Prohibition on the Purchase of Residential Property by Non-Canadians Act, S.C. 2022, c. 10, s. 235 (the “Act”) was passed and came into effect on January 1, 2023, and the Act will continue to be in effect for 2 years. While many details still require clarifications, the Regulations to the Act (the “Regulations”) have been released and assists in clarifying a few points.
What does the Prohibition Apply to?
By compiling the definitions in the Act and the Regulations, it is clear the prohibition applies only to “residential property”.
Residential property under the combined definitions of the Act and Regulations includes:
- detached housing with three or fewer dwelling units;
- a part of a building that is a semi-detached house, rowhouse unit, residential condominium, or other similar premises that is intended to be owned separate from any other unit in the building;
- other properties as determined by regulation;
- vacant land which is both zoned from residential or mixed use and which is within a census agglomeration or census metropolitan area.
The Act is targeting “non-Canadians”, although this is not a clearly defined term in the Act, the clarification of this has been addressed in the Regulations. Certain exemptions to this have been made already, and others seem likely to arise as time passes and reveals additional complexities of defining this term in an increasingly mobile global population.
A “non-Canadian” is defined as:
An individual who is:
- not a Canadian citizen;
- is not registered as an “Indian” under the Indian Act, RSC 1985, c I-5; or
- is not a permanent resident.
A company who is:
- not incorporated in Canada;
- wherein more than 3% of the equity or voting rights are held by a person who is non-Canadian; or
- wherein control in fact of the corporation, whether direct or indirect, is by a person who is non-Canadian.
There is room to expand this definition in future regulations.
What is a “Purchase”?
Although phrased in terms of a purchase, the Regulations define a purchase as “the acquisition, with or without conditions, of a legal or equitable interest or a real right in a residential property.”
Therefore, not only is it not limited to registered interests and filed transfers, but also includes the execution of contracts. The definition consequently states that the act of solely entering into a contract is an offense, as it creates a legal and equitable interest or right. This requires us to focus on the concept of acquisition of a legal or equitable interest, not on the completion of the usual formalities of transferring property at the Land Title Office.
However, a 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.
Note: the prohibition is not applicable to those liabilities assumed prior to January 1, 2023.
What exceptions have been created?
The non-Canadian prohibition will not apply to:
(a) a temporary resident* within the meaning of the Immigration and Refugee Protection Act, S.C. 2001, c. 27 who satisfies prescribed conditions;
* if the temporary resident is a student at a designated learning institution, the temporary resident must satisfy one of these four conditions:
- they filed all required income tax returns under the Income Tax Actfor each of the five taxation years preceding the year in which the purchase was made,
- they were physically present in Canada for a minimum of 244 days in each of the five calendar years preceding the year in which the purchase was made,
- the purchase price of the residential property does not exceed $500,000.00, or
- they have not purchased more than one residential property.
* if the temporary resident is authorized to work (with or without a permit) under the Immigration and Refugee Protection Regulations;
- they worked in Canada for a minimum period of three years within the four years preceding the year in which the purchase was made, if the work is full-time work (30+ hours per week),
- they filed all required income tax returns for a minimum of three of the four taxation years preceding the year in which the purchase was made, or
- they have not purchased more than one residential property.
(b) a refugee under the Immigration and Refugee Protection Act, 2001, c. 27;
(c) a joint purchase with a spouse who is:
- a Canadian citizen,
- a person registered as an “Indian” under the Indian Act, RSC 1985, c I-5, or
- permanent resident or refugee under the Immigration and Refugee Protection Act, S.C. 2001, c. 27;
(d) a person of a prescribed class of persons*.
* Prescribed Classes of Persons include:
- foreign nationals who hold a passport that contains a valid diplomatic, consular, official or special representative acceptance issued by the Chief of Protocol for the Department of Foreign Affairs, Trade and Development;
- foreign nationals, with valid temporary resident status, whose temporary resident visa was issued, or temporary resident status was granted, following an exemption provided under section 25.2 of the Immigration and Refugee Protection Act, S.C. 2001, c. 27, if the Minister is of the opinion that the exemption was justified based on public policy considerations to provide safe haven to those fleeing conflict; and
- persons that have made a claim for refugee protection in accordance with subsection 99(3) of the Immigration and Refugee Protection Act, S.C. 2001, c. 27, if that claim has been found eligible and referred to the Refugee Protection Division under subsection 100(1) of that Act.
Further exemption available where the application of the prohibition is incompatible with the rights recognized and affirmed by section 35 of the Constitution Act, 1982 (Rights of Aboriginal Peoples of Canada).
What are the Enforcement and Remedial Provisions?
The legislation states:
“Every non-Canadian that contravenes the prohibition and every person or entity that counsels, induces, aids or abets or attempts to counsel, induce, aid or abet a non-Canadian to purchase, directly or indirectly, any residential property knowing that the non-Canadian is prohibited under this Act from purchasing the residential property is guilty of an offence and liable on summary conviction to a fine of not more than $10,000.”
The language used in the offence provisions shows this to be an offence which requires the aiding party intend to help the non-Canadian purchaser contravene the prohibition. Based on this language it does not appear to be an offence to unwittingly provide information to a non-Canadian who later uses that information to contravene the prohibition. However, it will be difficult in practice to prove what was known to the parties, and what the intent of the information-provider was at the time of speaking with the non-Canadian.
The offence provisions also ensure the use of a corporation (or other entity) does not shield the aiding party from liability. Directors, officers, senior officials, and others are all considered party to and liable for the offence under a broad range of circumstances. Specifically, if an entity commits an offence, then “any of the following persons that directed, authorized, assented to, acquiesced in or participated in the commission of the offence is a party to and liable for the offence whether or not the corporation or entity has been prosecuted or convicted:
- an officer, director or agent or mandatary of the corporation or entity;
- a senior official of the corporation or entity;
- any individual authorized to exercise managerial or supervisory functions on behalf of the corporation or entity.
Following conviction of the offence noted above, the superior court of the province in which the property is located (e.g. the British Columbia Supreme Court), is able to, upon application by the Minister, order the residential property be sold under any terms that the court considers appropriate in the following circumstances:
- the non-Canadian is the owner of the residential property at the time the order is made;
- notice has been given to every person who may be entitled to receive proceeds from the sale; and
- 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.
When an order for sale is made, it must include specific provisions, including:
- 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;
- 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;
- the repayment of the non-Canadian of an amount that is not greater than the purchase price they paid for the residential property; and
- the payment of any amount to the Receiver General for Canada.
Note that the validity of the sale of the property to the non-Canadian is not impacted by the legislation; therefore, the original seller of the residential property is not involved in the enforcement process.