Purpose
The purpose of this Advisory is to provide a summary of the federal government’s Regulations, released on December 21, 2022, respecting the Prohibition on the Purchase of Residential Property by Non-Canadians Act (“the Act”). The Regulations, along with the Act itself, come into force, on January 1, 2023.
Overview of Changes
The Regulations introduce a number of clarifications to the Act and address certain aspects of how the Act will operate when it comes into force. Specifically, the Regulations include:
Definition of “Non-Canadian”
- Expand the definition of non-Canadian to include entities that were formed other than under the laws of Canada or a province, or entities formed under Canadian or provincial laws but controlled by someone who is a non-Canadian. In other words, the definition of non-Canadian now includes partnerships, trusts, and all other persons who are not individuals or corporations;
Definition of “Residential Property”
- Exclude, from this definition, property located in an area of Canada that is not within major urban areas, defined as a census agglomeration (CA”) or a census metropolitan area (“CMA”). See Statistics Canada’s Census Tract reference maps here to determine which areas are excluded;
Expand the definition of residential property to include vacant land that does not contain a habitable dwelling, that is zoned for residential use or mixed use, and that is located within a major urban area or CA or CMA;
Definition of “Purchase”
- Clarify that a purchase means the acquisition, with or without conditions, of a legal or equitable interest or a real right in a residential property;
Introduce situations where the prohibition does not apply, such as: when a person acquires residential property resulting from death, divorce, separation or as a gift; when a dwelling is rented to a tenant who will occupy the unit; or when the transfer is under the terms of a trust created prior to January 1, 2023;
Definition of “Control”
- Clarify that privately held corporations controlled by a non-Canadian or an entity controlled by a non-Canadian are “controlled” when a non-Canadian has a three per cent direct or indirect ownership interest in an entity or corporation;
Exemption for Temporary Residents
- Clarify the prescribed conditions necessary for a temporary resident to be exempted from the prohibition;
Exemption for Foreign Nationals and Refugee Claimants
- Add foreign nationals who meet specified criteria and persons who have made a claim for refugee protection and been found eligible to the list of exempted persons;
Exemption for Indigenous People and Communities
- Clarify that the Act does not apply if it is incompatible with the rights recognized and affirmed by Section 35 of the Constitution Act, 1982, which recognizes the existing Indigenous and treaty rights of Indigenous peoples of Canada; and
Issuing Orders for Contravening the Act
- Set out that if an order under Section 7(1) of the Act is made to sell a property that was wrongly purchased by a non-Canadian that the proceeds of the sale be distributed in a specified order.
Considerations For Regulated Entities
Regulated entities are advised to review both the Act and the Regulations to ensure they fully understand the scope and application of the prohibition. The Regulations clarify a number of definitions and shed light on the full range of exempted persons, transactions, and property.
Regulated entities are reminded that once the Act is in force, any person or entity that assists a non-Canadian in purchasing directly or indirectly any residential property is guilty of an offence and could be liable to a fine of not more than $10,000.
Regulated entities should also be aware that the Act does not apply to non-Canadians who enter into or assume liability under agreements of purchase and sale before January 1, 2023. While the sale of residential property to a non-Canadian after January 1, 2023 will remain valid, a court may order a sale of any residential property that has been purchased by a non-Canadian in violation of the Act and the non-Canadian cannot recover more than what was paid for the property.
Regulated entities that are unsure if a client, property, or transaction is captured by the Act, should advise their client to seek legal advice before continuing to provide their services.
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