Effective January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act” or the “Foreign Buyers Ban”) came into effect. It prevents non-Canadians and corporations controlled by non-Canadians from purchasing residential property in Canada for 2 years commencing on January 1, 2023.
The General Prohibition
The Foreign Buyers Ban prohibits the purchase of “residential property” by “non-Canadians”. These are defined terms in the Act and the definitions are much broader than expected. The prohibition will remain in effect for 2 years, after which the legislation will be automatically repealed.
What is the Foreign Buyers Ban
On June 23, 2022, Parliament passed the Act. The Regulations to the Act were enacted on December 21, 2022 and the Act came into force on January 1, 2023. A few highlights of the Act you should be aware of:
- It does not apply to Canadian citizens or permanent residents
- It applies to non-Canadians directly or indirectly purchasing residential property in Canada for a period of two years
- It applies to residential property, including detached houses or similar buildings of one to three dwelling units, as well as parts of buildings such as semi-detached houses, condominium units, or other similar premises (Note the Act does not prohibit the purchase of larger buildings with multiple units)
- It applies to direct or indirect purchases of residential property, including purchases made through corporations, trust or other legal entities
- It establishes penalties for non-compliance applicable to Non-Canadians, as well as any person or entity knowingly assisting a Non-Canadian in violation of the prohibition.
The following are key elements that the Regulations cover:
- Non-Canadian: the Act applies to individuals who aren’t Canadian citizens, permanent residents of Canada or persons registered under the Indian Act.
- Corporations: the term Non-Canadian, as it relates to corporations and other entities, has been defined as an entity not formed pursuant to the laws of Canada or one of its provinces; and an entity formed under Canada’s laws that has direct or indirect ownership by a Non-Canadian of 3% or more of the value of the entity’s equity or voting rights. Note that the Act also applies to corporations based in Canada.
- Residential Property: buildings of up to 3 dwelling units and parts of buildings, like semi-detached houses or condominium units.
- Purchase: the regulations broadly define the term purchase to include the direct or indirect acquisition of a right or interest in Residential Property. The Regulations then specifically exclude, among other things, acquisitions of interests resulting from transitional or life events such as death, divorce, separation, or a gift.
- Excluded Residential Properties: properties located outside of a Census Agglomeration (CA) or Census Metropolitan Area (CMA) are excluded from this prohibition. A link can be found here. Both CMA’s and CA’s are formed by 1 or more adjacent municipalities centered on a population centre, or the core. A CMA must have a total population of at lease 100,000 of which 50,000 or more must live in the core and a CA must have a core population of at least 10,000. A reference map is available here.
- Exceptions (People): there are permitted exceptions for international students, temporary residents, foreign nationals, and refugee claimants, subject to varying conditions, such as tax filing and residency obligations.
In short, the Foreign Buyers Ban has exceptions and exclusions in it. There are exceptions as to who is covered under it. There are also excluded residential properties which are excluded from this prohibition. As such, due diligence is needed to determine whether this applies to your situation will be fact specific.
As the Foreign Buyers Ban only applies to these census areas, the purchase of cottage properties by non-Canadians will continue to be possible, depending on the specific location of the cottage.
What are the penalties for violating the Foreign Buyers Ban?
There are significant penalties for violating this legislation. Any person knowingly assisting or attempting to assist a non-Canadian in the purchase of a prohibited property may be subject to a summary conviction offence under the Criminal Code and a fine of up to $10,000.
For any questions or concerns regarding the Foreign Buyers Ban, please contact us at anytime.