In a decisive move to regulate the real estate market, the Canadian government implemented the Prohibition on the Purchase of Residential Property by Non-Canadians Act on January 1, 2023. The accompanying Prohibition on the Purchase of Residential Property by Non-Canadians Regulations sheds light on the intricate details of this legislation, significantly impacting both buyers and sellers in the Canadian real estate landscape.
1. Residential Properties Exempt from the Act
The Act, aimed at curbing foreign investment in the Canadian real estate market, focuses on properties in “census agglomerations” or “census metropolitan areas.” However, the recent Amendments Regulation, effective March 27, 2023, has excluded properties not situated in these areas. This change relieves individuals who are eyeing recreational properties in smaller centers like Squamish, Penticton, and Sylvan Lake.
Moreover, the Amending Regulation clarified that properties zoned for mixed commercial and residential use, used solely for commercial purposes without dwelling units, are exempt from the purchase prohibition. This adjustment addresses a significant loophole in the original Act and provides a clearer scope for buyers and sellers.
2. What Constitutes a Purchase?
Understanding what constitutes a restricted purchase under the Act is critical. The Act’s language encompasses the “acquisition, with or without conditions, of a legal or equitable interest or a real right in a residential property.” The ambiguity in the original Act has been somewhat clarified by the Regulation, indicating that both entering into a purchase agreement and completing the conveyance fall under the prohibition.
Notably, the Act also extends its reach to assignments of purchase agreements, prohibiting assignments to non-Canadians between January 1, 2023, and January 1, 2025, regardless of the original agreement’s execution date.
While there was initial uncertainty regarding mortgages falling under the Act’s purview, the Canadian Mortgage and Housing Corporation (CMHC) clarified that the mere taking of a mortgage by a non-Canadian is not prohibited. However, lending for the purpose of acquiring residential property remains restricted.
3. Exemptions and Control by Non-Canadians
The Regulation introduces specific exemptions to the Act, including transfers resulting from death, divorce, separation, or gifts, and acquisitions for development purposes. The latter, added in the Amending Regulation, allows entities with 10 percent or more foreign control to purchase properties for new construction or substantial remodeling.
Defining “control,” the Regulation includes direct or indirect ownership of shares representing 10 percent or more of the equity or carrying 10 percent or more of voting rights. The Amending Regulation extended the exemption to publicly traded entities listed on designated stock exchanges, addressing a prior gap in the Act.
4. Consequences for Contravening the Act
Contravention of the Act could lead to fines up to $10,000 per person or entity. Moreover, the Act empowers courts to order the sale of a property acquired in violation, with proceeds distributed in a specific order, prioritizing Minister’s costs, fines, and repayments to Canadians.
5. Recent Amendments Easing Restrictions
In a surprising move, the government recently eased restrictions on non-Canadians purchasing residential property. Work permit holders with at least 183 days remaining can buy one property, while non-Canadians intending to develop can purchase vacant land for residential or mixed-use purposes.
It’s crucial to note that land transactions in other countries might entail different rules. Therefore, potential buyers are advised to seek legal counsel before making any property or land acquisitions.
In conclusion, navigating the complex landscape of land transactions in Canada requires a nuanced understanding of the Prohibition on the Purchase of Residential Property by Non-Canadians Act and its recent amendments. Buyers and sellers alike should proceed with caution, seeking legal advice to ensure compliance with the ever-evolving regulatory framework.
SOURCES
Bennett Jones | Re/Max | CBC
