Real Estate Ban on Foreign Buyers

This post is meant to cover the Prohibition on the Purchase of Residential Property by Non-Canadians (the “Act”) and the upcoming two-year ban on foreign buyers purchasing certain residential properties in Canada. The ban includes penalties for Canadian residents who assist foreign buyers in purchasing property in Canada.

Under the Act, "non-Canadian" individuals and corporations that are "controlled" by foreign corporations or individuals who are not permanent residents of Canada or Canadian citizens will be subject to the ban on purchasing certain residential properties in Canada.

According to the Regulations, "control" of a corporation or entity refers to:

• Direct or indirect ownership of shares or ownership interests representing 3% or more of the value of the equity in the corporation or entity, or carrying 3% or more of its voting rights; or

• Control in fact of the corporation or entity, whether directly or indirectly, through ownership, agreement or otherwise.

Additionally, the definition of "non-Canadian" under the Act is expanded by the Regulations to include:

• Entities formed outside of Canada; and

• Entities formed in Canada that are controlled by an entity formed outside of Canada, or controlled by a person who is not a Canadian citizen, permanent resident, or a person registered as an Indian under the Indian Act.

The expansion of the definitions of "control" and "non-Canadian" in the Regulations means that a wider range of corporations, partnerships, and other legal entities will be subject to the ban on purchasing certain residential properties in Canada. The threshold for "control" set by the Regulations is lower than what is commonly used in Canadian corporate law. Therefore, professionals in Canada's residential real estate industry should be cautious and thorough in their due diligence and in verifying the identity of their clients to ensure compliance with the Regulations and the Ban.

According to the Regulations, "the acquisition, with or without conditions, of a legal or equitable interest or a real right in a residential property constitutes a purchase." The term "acquisition" is not defined in the Regulations, but it is likely broad enough to include the transfer of ownership of property subject to the ban, as well as the entering into of an agreement for the purchase and sale of such property.

The Regulations specify that the following do not constitute a purchase under the Act:

The acquisition by an individual of an interest or a real right resulting from death, divorce, separation, or 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 before the Act came into force; or

• The transfer resulting from the exercise of a security interest or secured right by a secured creditor.

According to the Regulations, residential property that is not located within a census agglomeration or a census metropolitan area will not be subject to the ban on foreign buyers. This generally means that municipalities with a core population of less than 10,000 people will not be affected by the ban, while larger municipalities will be subject to the ban. However, it is worth noting that some smaller municipalities where people own recreational properties will still be affected by the ban.

The Regulations also state that residential property subject to the ban includes property that is zoned for mixed use or residential use, even if there is no currently existing dwelling on the property. This means that the ban will apply to certain properties that may not be considered residential at the time of purchase, but have the potential to be developed into residential properties in the future.

There are several exemptions available to individuals subject to the ban on foreign buyers purchasing certain residential properties in Canada. These exemptions include:

• Refugees

• Non-Canadian individuals who purchase residential real estate with a spouse or common-law partner, as long as their spouse or common-law partner is a Canadian citizen, a permanent resident of Canada, a person registered as an Indian under the Indian Act, or a refugee.

In addition to the previously mentioned exemptions, temporary residents of Canada will also be exempt from the ban if they meet the following criteria:

• They are enrolled in a program of authorized study at a designated institution, and

• They filed all required income tax returns under the Income Tax Act for each of the five taxation years preceding 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; and

• They have not purchased more than one residential property, or

• They hold a work permit or are authorized to work in Canada under the Immigration and Refugee Protection Regulations, and

• 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 as defined in subsection 73(1) of the Immigration and Refugee Protection Regulations;

• They filed all required income tax returns under the Income Tax Act for a minimum of three of the four taxation years preceding the year in which the purchase was made; and

• They have not purchased more than one residential property.

The Act and the newly announced Regulations mark a significant change in the Canadian residential real estate market. Although the new legislation will only be in effect for two years, the wide scope of the ban and the significant penalties for violating it should be taken into consideration by homeowners, real estate professionals, legal counsel, and others involved in the Canadian residential real estate market.