Foreign buyers who are interested in purchasing residential real estate property in Ontario are subject to the federal foreign buyer prohibition.
On January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the "Act") and accompanying regulations (the "Regulations") became effective. It prohibits the purchase of residential property by non-Canadians. The prohibition was set to expire on January 1, 2025; however, on February 4, 2024, the federal government expressed its intent to extend the existing ban on foreign ownership of Canadian housing by an additional two years, bringing it to January 1, 2027.
Who is Affected?
The Act prohibits non-Canadians from purchasing, directly or indirectly, any residential property.
The Act defines a non-Canadian to include:
- an individual who is neither a Canadian citizen nor a person registered as an Indian under the Indian Act nor a permanent resident;
- a corporation that is incorporated otherwise than under the laws of Canada or a province;
- a corporation incorporated under the laws of Canada or a province whose shares are not listed on a stock exchange in Canada for which a designation under section 262 of the Income Tax Act is in effect and that is controlled by a person referred to in paragraph (a) or (b); and
- a prescribed person or entity.
Who is Exempt?
The Act identifies certain persons and entities who are exempt from the prohibition imposed by the Act which includes:
- temporary residents who satisfy certain conditions;
- protected persons, including those with a refugee protection;
- an individual who is a non-Canadian who purchases residential property in Canada with their spouse or common-law partner who is a Canadian citizen;
- a person registered as an Indian under the Indian Act;
- a permanent resident;
- a temporary resident within the meaning of the Immigration and Refugee Protection Act; and
- non-Canadians who purchased properties before January 1, 2023.
For a temporary resident to qualify as an exempt person under the Act, he/she must satisfy one of the conditions found under s. 5 of the Regulations. The prescribed persons or entities which are exempt under s. 4(2)(d) of the Act are highlighted under s. 6 of the Regulations.
Residential Properties Prohibited from Purchase
Section 2 of the Act defines residential property as any real property or immovable that is situated in Canada and that is:
- a detached house or similar building containing not more than three dwelling units;
- a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises that is, or intended to be, a separate parcel, or other division of real property or immovable owned; or
- any prescribed real property or immovable. Therefore, the prohibition should not apply to recreational properties such as recreational cottages.
Which Residential Properties are Exempt?
The Regulations under the Act further limit the prohibition to only residential properties that are within either a "census agglomeration" or a "census metropolitan area", both of which are defined by Stats Canada. It is an area where one or more adjacent municipalities are centred on a population centre, otherwise known as a core. A census agglomeration requires a population of at least 10,000 people, while a census metropolitan area requires at least 100,000 people, of which at least 50% live in the core.
Section 4(2) of the Regulations explicitly mentions some purchases or acquisitions that are not prohibited such as an interest or a right resulting from death, divorce, separation, or a gift would not be considered a purchase/acquisition which would prohibit the non-Canadian from acquiring. Furthermore, the Regulations highlights that tenant rentals, transfers under the terms of a trust created prior to January 1, 2023; the transfer of security interest; and the acquisition by a non-Canadian, of residential property for development purposes are also not prohibited under the Act.
Penalties for Violation
Section 6(1) highlights that every non-Canadian that contravenes s. 4(1) of the Act, by purchasing, directly or indirectly, residential property, and every person or entity that counsels, induces, aids, or abets a non-Canadian to purchase residential property, knowing that the non-Canadian is prohibited under the Act from purchasing the residential property, would be guilty of an offence and liable on summary conviction to a fine of not more than $10,000.
If a corporation or entity commits the offence, s. 6(2) of the Act highlights who within the corporation or entity could be liable, whether or not the corporation or entity is prosecuted or convicted. S. 6(2) highlights that a senior official; individual authorized to exercise managerial or supervisory functions on behalf of the corporation or entity; and an officer, director or agent of the corporation or entity could be prosecuted or convicted. Furthermore, the penalty could extent to any person that facilitates a prohibited transaction, which includes, but not limited to potentially lawyers, brokers, and realtors.
Future of the Restrictions
In January 2024, the city of Toronto proposed a new Municipal NRST to mirror the provincial provisions. The proposal suggests that a new 10% tax be imposed on housing in Toronto and to take effect on January 1, 2025, pending approval from city council.
To conclude, there are prohibitions and restrictions in place to make obtaining Canadian residential properties more accessible for Canadians. Therefore, a non-Canadian cannot attempt to evade the prohibition by not completing a residential purchase or deferring the conveyance of the residential property until after 2024, as the mere act of signing a contract would likely be captured by the scope of the legislation based on common law principles. Given the scope of the Act and serious contraventions which may apply to those who are not purchasing themselves, but merely assisting in a transaction, it is crucial to ensure the parties take necessary precautionary actions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.