Amendments to the Canadian Property Prohibition for Non-Canadians
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On January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) and associated regulations (the “Regulations”) came into effect. The purpose of the Act was to ensure that residential homes in Canada were sold to Canadian buyers and had the effect of preventing non-Canadians from directly or indirectly purchasing residential property in Canada for a period of two years, with certain prescribed exceptions.
In response to concerns about the Act’s limitations, the Federal Government of Canada implemented the Regulations Amending the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations (the “Amended Regulations”) on March 27, 2023. The stated purpose of the Amended Regulations is to enhance flexibility of newcomers and business looking to add to Canada’s housing supply. The amendments are in force effective immediately and are discussed in detail below.
Increased Ownership Threshold for Foreign Control
A privately held corporation or other entity formed under Canadian provincial or federal law, and “controlled” by a non-Canadian, is deemed to be a non-Canadian for the purposes of the Act. Under the Regulations, “control” means direct or indirect ownership amounting to 3% or more of the value of the corporation’s or entity’s equity or its voting rights. The Amended Regulations increase the threshold for control from 3% to 10% of the value of equity or voting rights.
Exception for Publicly Traded Entities
The Act initially provided an exception solely for corporations whose shares are listed on a stock exchange in Canada even though they are “controlled” by a non-Canadian, but had not extended this same exception to “entities”. The Amended Regulations extend this exception to entities whose shares or ownership interests are so listed. The prohibition under the Act no longer applies to any entity formed under Canadian provincial or federal law and publicly traded on a stock exchange in Canada, including REITs.
Exception for the Purpose of Development
Upon implementation of the Act, members of the commercial real estate industry expressed concern that the Act would have the effect of supressing new residential development, which is contrary to the stated purpose of making housing more affordable for Canadians. For example, the Act prohibits the purchase of detached houses with not more than three dwelling units and semi-detached homes by non-Canadians. This would prevent a developer from buying several single-family houses for redevelopment as townhouses, apartments, or condominiums. Although the Act continues to apply to detached homes and semi-detached homes, the Amended Regulations now include an exception for “the acquisition by a non-Canadian of residential property for the purposes of development.”
Repeal of Provision regarding Vacant Land
Under the Act, land that does not contain any habitable dwelling, that is zoned for residential use or mixed use, and that is located within a census metropolitan area was prescribed as “residential property”. The Amended Regulations have repealed section 3(2) of the Regulations, so the prohibition does not apply to all lands zoned for residential and mixed use. Vacant land zoned for residential and mixed use can now be purchased by non-Canadians and used for any purpose by the purchaser, including residential development.
Availability of Work Permit Holders to Purchase Homes
The Amended Regulations allow those holding a work permit or those authorized to work in Canada under the Immigration and Refugee Protection Regulations to buy residential property. Work permit holders are eligible if they have 183 days or more of validity remaining on their work permit or work authorization and have not purchased more than one residential property.
Conclusion
The Amended Regulations provide some further clarity and address several concerns that the Act raised. However, non-Canadian purchasers, investors and entities should continue to remain cautious for transactions involving Canadian residential property and seek legal advice when needed.
*This post is not intended to be legal advice and should not be taken as such. Please contact McConnan Bion O’Connor & Peterson if you have any questions regarding this post or require assistance or navigating the acquisition of land in Canada.