Canadian foreign home buyers ban coming into effect

The Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) enters into force this Sunday (January 1, 2023). As supplemented by detailed regulations (the “Regulations”), the Act prohibits any “non-Canadian” from purchasing, directly or indirectly, residential properties located in many municipalities across Canada. The Act will be automatically repealed on January 1, 2025, meaning the ban is slated to only be in effect for a two-year period.

Under the Act, a non-Canadian includes:

  • an individual who is not a Canadian citizen, permanent resident, or registered as an “Indian” under the Indian Act (note that income tax residency is irrelevant);
  • a corporation or other “entity” (not defined in the Act but stated by the CMHC in its FAQ as intended to include partnerships and trusts) not incorporated or formed under the laws of Canada or a province; and
  • private corporations or entities that are “controlled” by one or more non-Canadian individuals, corporations, or entities described above.

Exclusions apply to qualifying temporary residents and protected persons (each within the meaning of the Immigration and Refugee Protection Act), refugee protection claimants, foreign diplomats, and spouses of a Canadian citizen, permanent resident, or registered “Indian” who purchase the property jointly with their spouse.

Under the Regulations, “control” is defined to mean both: (a) direct or indirect ownership of shares or interests representing 3% or more of the votes or equity value of the corporation or entity; and (b) factual control, directly or indirectly and whether through ownership, agreement or otherwise. A 3% threshold for determining control is extremely low and difficult to reconcile with the common understanding of “control” (or past jurisprudence interpreting that term). This may represent a significant trap for unwary purchasers and their advisors.

Under the Regulations, “purchase” is defined broadly to mean the acquisition, with or without conditions, of any legal or equitable interest or real right in a residential property. That said, exclusions exist for: acquisitions resulting from death, divorce, separation, or gift; tenancy arrangements (if the tenant occupies the property themselves); transfers under trusts created prior to January 1, 2023; and transfers following the exercise of a security interest by a secured creditor. In addition, only residential properties (defined to include vacant land zoned for residential or mixed use) located within a census agglomeration or census metropolitan area, within the meaning of Statistics Canada’s Standard Geographical Classification (SGC) 2021 (illustrated here), are caught.

Consequences for acquiring a property in contravention of the Act include fines up to $10,000 and a court-ordered sale of the property. Fines also extend to persons or entities that knowingly (or attempt to) counsel, induce, aid or abet a non-Canadian to acquire property in contravention of the Act. If a forced sale of the property occurs, the non-Canadian cannot receive proceeds greater than their original purchase price; in other words, they are prevented from realizing any profit on the sale.

The Act and Regulations contain additional limitations and exclusions to those described above. For the next two years, those who are, or may be, a “non-Canadian” should seek legal advice well in advance of acquiring Canadian residential real estate.

Prepared by: Alexander Demner , Alexei Paish

Alexander is a partner practicing in the firm’s Vancouver office. Alexander’s practice covers several areas of taxation, including estate planning, pre-sale and divestiture structuring, owner-manager remuneration, taxpayer representation, and tax litigation. Alexander routinely advises on and implements reorganizations for individuals,… more »

Alexei Paish is an associate practicing in the firm’s Vancouver office. Alexei maintains a broad tax practice with a view to achieving tax efficiency across all of his clients’ personal and business affairs. Alexei focusses on advising in respect of… more »