On December 21, 2022, the federal government released regulations to the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”). For information on the Act, please refer to our previous bulletin, “Canadian Government to Prohibit Non-Canadians from Purchasing Residential Real Estate for a Period of Two Years”.
The Prohibition on the Purchase of Residential Property by Non-Canadians Regulations (the “Regulations”) sets out clarifications, definitions and specific exemptions to the Act. Notably, the Regulations clarify that the Act also prohibits non-Canadians from directly or indirectly acquiring any legal or equitable interest in any lands which are zoned residential use or mixed use and that is located in a census agglomeration or a census metropolitan area.
Clarification on meaning of “residential property” and “purchase”
- Residential Property
The Regulations specifically prescribe land that does not contain any habitable dwelling, that is zoned for residential use or mixed use, and that is located within a census agglomeration or a census metropolitan area as “residential property” subject to the prohibition. This has the effect of prohibiting non-Canadians from purchasing both vacant land and developed land that has zoning designations which permit any residential purpose.
A purchase is defined in the Regulations to mean the acquisition, with or without conditions, of a legal or equitable interest or a real right in residential property. This captures acquisitions and dispositions of shares in an entity that has an interest in land or of a beneficial interest (including transfer of beneficial interest as part of a reorganization), and potentially captures other types of interests in land such as mortgages, leases, easements and profit-a-prendres.
For clarity, the Regulations specify that following are not considered purchases:
- the acquisition by an individual resulting from death, divorce, separation or a gift;
- the rental of a dwelling unit to a tenant which the tenant occupies;
- the transfer under the terms of a trust that was created prior to January 1, 2023; or
- the transfer resulting from the exercise of a security interest or secured right by a secured creditor.
Regulations expand the scope “non-Canadians” included under the prohibition
- Meaning of “non-Canadian”
Under section 2 the Act, “non-Canadian” is defined to include persons and entities which are prescribed under the Regulations. The Regulations prescribe the following persons and entities as non-Canadian:
- an entity not formed under the laws of Canada or a province; and
- an entity formed under the laws of Canada or a province and “controlled” by an entity referred to in subparagraph (a) above, or controlled by a person referred to in the definition of non-Canadian in section 2 of the Act.
The inclusion of “entities” in the definition of non-Canadian has the effect of bringing other forms of business structures, such as partnerships and trusts, under the prohibition.
- Definition of “control”
The Regulations also define the term “control” with respect to a corporation or an entity as provided:
- direct or indirect ownership of shares or ownership interests of the corporation or entity representing 3% or more of the value of the equity in it, or carrying 3% or more of its voting rights; or
- control in fact of the corporation or entity, whether directly or indirectly, through ownership, agreement or otherwise.
This confirms that any private Canadian corporation or entity will be deemed to be “non-Canadian” if it has any foreign corporation, foreign entity or individual that is not a Canadian citizen or permanent resident of Canada, that directly or indirectly holds shares, interests or rights in the corporation or entity meeting this threshold.
It is not clear whether the control test requires aggregating the interests of all non-Canadians (i.e. whether an entity would be considered non-Canadian if an entity has multiple non-Canadians who individually each hold less than 3% but together hold 3% or more of the value of the equity in the entity or carrying 3% or more of its voting rights), or if it is only concerned with whether one non-Canadian meets the 3% threshold.
The Regulations exempt certain temporary residents from the prohibition.
International students enrolled in a program of authorized study at a designated learning institution, as defined in the Immigration and Refugee Protection Regulations (the “IRPR”) are exempt from the prohibition provided:
- they filed all required income tax returns for each of the five taxation years preceding the year in which the purchase was made;
- they were physically present in Canada for a minimum of 244 days in each of the five calendar years preceding the year in which the purchase was made;
- the purchase price of the residential property does not exceed $500,000; and
- they have not purchased more than one residential property.
Non-Canadian individuals who hold a work permit, as defined in the IRPR, or are authorized to work in Canada without a work permit under section 186 of the IRPR, are exempt from the prohibition provided:
- they worked full-time in Canada for a minimum period of three years within the four years preceding the year in which the purchase was made;
- they filed all required income tax returns for a minimum of three of the four taxation years preceding the year in which the purchase was made; and
- they have not purchased more than one residential property.
Foreign Nationals with either (i) a passport containing a valid diplomatic, consular, official or special representative acceptance, or (ii) valid temporary resident status (holding a temporary resident visa or granted temporary resident status) following an exemption under section 25.2 of the Immigration and Refugee Protection Act (the “IRPA”) are exempt from the prohibition, as well as refugees under section 99(3) of the IRPA.
Penalty and Enforcement
Any non-Canadian that contravenes the Act and any person or entity, including any seller and any advisor, that knowingly assists in a contravention of the Act may be subject to a penalty of up to $10,000.
Section 7 of the Act also authorizes a provincial superior court to order the sale of the residential property that was purchased in contravention of the Act. Under the Regulations, an order under section 7 may only be made if: (a) the non-Canadian is the owner of the residential property at the time of the order; (b) notice has been given to every person who may be entitled to proceeds from the sale; and (c) the court is satisfied that the impact of the order would not be disproportionate to the nature and gravity of the contravention, the circumstances of the contravention and the resulting conviction.
Further, section 7(2) of the Regulations provides that on any ordered sale, any non-Canadian may not receive an amount that is greater than the purchase price they paid for such residential property.
While the Regulations attempt to clarify how the Act operates, there is still ambiguity as to the scope and application of the prohibition. Purchasers with ownership structures involving non-residents, even minimally, should consult their legal counsel to ensure they are not contravening the Act. The extension of the prohibition to areas zoned mixed-use or residential use should raise flags as it is clear the prohibition does not only apply to traditional residential property. For example, an industrial building located on land zoned mixed-use and in a census metropolitan area or a census agglomeration is also subject to the prohibition. The extension of the definition of purchase also raises issues with interests in land other than registered or beneficial title, such as leases and mortgages. Entities that are considering acquiring any rights with respect to land and any developers and realtors working with purchasers should also take extra precautions to ensure they are complying with the Act.
We understand that amendments to the legislation are being considered as of the date of this bulletin and we will provide an update once further information is available
Disclaimer: This bulletin is for general information purposes and is subject to the particular facts of each case; certain requirements may have been simplified and the law may have changed since the date of this bulletin.
 S.C. 2022, c. 10, s. 235.
 “census agglomeration” and “census metropolitan area” have the meaning set out in Statistics Canada’s Standard Geographical Classification (SGC) 2021