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By Chris Sharpe and Manveer Sal
The federal government has introduced legislation that prohibits the purchase of residential real estate by non-Canadians. The An Act to prohibit the purchase of residential property by non-Canadian citizens (“Act”) shall enter into force on January 1, 2023 and remain in force for two years.
Buyers and sellers of residential property in Canada, along with their lawyers, notaries and real estate agents, should familiarize themselves with the prohibitions contained in the Act, the penalties for violating the Act and consider changes that may be required to purchase and sale contracts, closing documents and procedures record keeping in relation to their real estate transactions – and whether their transactions are permitted at all.
Breaking the law – Who is prohibited from buying residential property
Section 4(1) is the key operative provision of the Act, which prohibits a “non-Canadian” from purchasing, directly or indirectly, any residential property. The Act defines “non-Canadian” as:
(a) an individual who is neither a Canadian citizen nor a person registered as an Indian under Indian law nor permanent resident;
(b) a corporation incorporated otherwise than under the laws of Canada or a province;
(c) a corporation incorporated under the laws of Canada or a province whose shares are not listed on a stock exchange in Canada that is designated under section 262. Income Tax Law is in force and it is controlled by the person from paragraph (a) or (b); and
(d) a prescribed person or entity.
Importantly, “control” of a corporation is not yet defined in the Act, but should be defined still to go regulations.
Section 4(2) continues to narrow the scope of the ban by excluding the following persons from the scope of Article 4(1):
(a) a temporary resident within the meaning of Law on Immigration and Protection of Refugees that meets the prescribed conditions;
(b) protected person in the sense of paragraph 95(2) par Law on Immigration and Protection of Refugees;
(c) an individual who is not a Canadian and who purchases residential property in Canada with his spouse or common-law partner if the spouse or common-law partner is a Canadian citizen, a person registered as an Indian under the Indian Act, a permanent resident or a person referred to in paragraph (a) or (b) ; or
(d) a person of a prescribed class of persons.
A temporary resident may include a foreign national who is permitted to enter or remain in Canada as a student, worker or temporary resident permit holder.
Interestingly, these exemptions appear to open the door for temporary foreign workers and international students to continue buying residential real estate in Canada, provided they meet the (yet to be) prescribed requirements.
Breaking the law – what is residential property
The ban on foreign buyers under the Law applies to “residential real estate”. Residential property is defined in the Act as “any immovable property or immovable property, other than prescribed immovable property or immovable property, situated in Canada that is
(a) a detached house or similar building, containing not more than three dwelling units, together with such proportion of the appurtenances to the building and land under or immediately adjacent to the building as is reasonably necessary for its use and enjoyment as a place of residence for natural persons;
(b) part of a building which is a semi-detached house, terraced unit, condominium or other similar premises which is, or is intended to be, a separate plot or other subdivision of immovable property or immovable property owned or intended to be owned, other than any other units in the building, together with that proportion of all common areas and other appurtenances in the building and land situated under or immediately adjacent to the building attributable to the house, unit or premises, which is reasonably necessary for its use and enjoyment as a place of residence for individuals; or
(c) all prescribed immovable property or immovable property.”
“Residential unit” is defined in the Law as “a residential unit containing a private kitchen, bathroom and private living room”.
These definitions raise a number of interesting considerations and types of property that are excluded from the application of the Act. For example, a detached house with 4 or more residential units would not be covered by the definition. The same applies to residential buildings that are not part of the development strata, given that, although there are a certain number of residential units, they are not owned separately from the other units in the building. Finally, with the increase in the number of strata corporation liquidations occurring across BC, given that ownership of strata corporation assets (which are strata lots, common property, and common property) tend to be consolidated prior to transfer to a buyer, these may also be exempt under the current language of the Act.
Breaking the law – punishment for breaking the law
Section 6(1) of the Act states that any non-Canadian, as well as any other person who advises, encourages, aids or abets or even attempts to advise, induce, aid or abet A non-Canadian to purchase residential real estate in Canada is guilty of an offense and liable on summary conviction to a fine of not more than $10,000. Section 6(2) of the Act extends liability and offense to the following persons who direct, authorize, consent or acquiesce or participate in the commission of a criminal offence:
(a) an officer, director or agent or principal of a corporation or entity;
(b) a senior officer of the corporation or entity;
(c) any person authorized to exercise management or supervisory functions on behalf of the corporation or entity.
Lawyers, notaries public, real estate agents and others involved in facilitating real estate transactions should consider applying these penalties to their activities.
Comparison with additional BC property transfer tax
For those familiar with British Columbia’s Additional Property Sales Tax (“Foreign buyer’s tax”) on foreign entities, you may be wondering how the definition of a “foreign entity”, to whom the foreign buyer tax applies, compares to a “non-Canadian” who is prohibited by the Act from purchasing residential property.
The foreign buyer tax applies to foreign entities, which includes both foreign nationals and foreign corporations. A foreign national is a person who is not a Canadian citizen or permanent resident, and includes a stateless person. A foreign corporation is a corporation that is one of the following:
(a) a corporation not incorporated in Canada;
(b) unless the corporation’s shares are listed on a Canadian stock exchange, a corporation that is incorporated in Canada and is controlled by one or more of the following:
(i) a foreign citizen;
(ii) a corporation not incorporated in Canada;
(iii) a corporation which, if every part of the capital stock of the corporation owned by a foreign national or a corporation described in paragraph (a) of this definition, would be owned by a particular person, controlled by a particular person;
Therefore, the prohibition on foreign buyers under the Act is less broad than the application of the tax on foreign buyers to the extent that it does not prohibit the purchase of residential real estate by those persons exempted under section 4(2) of the Act (including temporary residents, international students and temporary foreign workers ). In contrast, BC’s foreign buyer tax has a broader scope as it applies to all individuals who are not Canadian citizens or permanent residents, including temporary residents.
Constitutional implications
One potential issue that could arise in relation to the Act is whether a party can raise a constitutional challenge by claiming that it touches upon a matter of provincial jurisdiction. Under s. 92 of the Constitutional Law, 1867property rights are the exclusive competence of provincial legislatures.
The federal government can rely on its jurisdiction over the criminal law to defend such a claim, but, of course, it remains to be seen whether any party can challenge the constitutional law.
Conclusion
The two-year ban on the purchase of residential property by non-Canadians comes into effect on January 1, 2023. There are still many unknowns as to how and to whom the Act will apply. We expect the federal government to provide further guidance on the Act in due course, followed by further updates from the Clark Wilson team.
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