In an effort to calm housing prices and increase affordability, Parliament passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”), which comes into force on January 1, 2023.
The Act creates a prohibition on non-Canadians from directly or indirectly purchasing residential property, including condominium units and detached or semi detaches houses, for a period of two years, subject to a number of exceptions set out in Section 4(2) of the Act. Specifically, the prohibition does not apply to:
- A temporary resident within the meaning of the Immigration and Refugee Protection Act who satisfies prescribed conditions.
- A protected person within the meaning of subsection 95(2) of that Act.
- An individual who is a non-Canadian and who purchases residential property in Canada with their spouse or common-law partner if the spouse or common-law partner is a Canadian citizen, person registered as an Indian under the Indian Act, permanent resident or person referred to in paragraph (a) or (b).
- A person of a prescribed class of persons.
Regulations to accompany the Act have not yet been released, so it is not clear at the time of writing who would be encompassed in a “prescribed class of persons” under Section 4(2) set out above.
Section 4(5) of the Act specifically provides that the prohibition does not apply if a non-Canadian “becomes liable or assumes liability under an agreement of purchase and sale of the residential property before the day on which this Act comes into force.” We interpret this language to mean that the prohibition does not apply to any non-Canadian who enters into an agreement of purchase and sale for residential property prior to December 31, 2022.
Developers and vendors should be aware of the impending prohibition, as well as the penalties associated with non-compliance, including against those who induce, aid or abet, or attempt to induce, aid or abet a non-Canadian into purchase of residential real estate, which penalty may be a fine of up to $10,000 and a court order to sell the property.
Developers in particular may want to consider including certain provisions in future agreements of purchase and sale so as to demonstrate that they have undertook a reasonable inquiry into whether the purchaser is a non-Canadian under the Act.
The regulations to the Act are expected to be released in the coming months, which will identify specific details that speak to the scope of the Act, including defining the prescribed class of persons exempt from the prohibition, the prescribed circumstances in which the prohibition does not apply, as well as prescribed property that may be included in the definition of residential property under the Act. Once released, we will issue a follow up post in order to identify key details identified in the regulations, or changes to our original opinion, if any, as set out herein.