The federal government has made a decisive move to curtail foreign speculation in real estate. Starting on January 1, 2023, and lasting for a full two years, “non-Canadians” are prohibited from purchasing residential real property in Canada, under the Prohibition on the Purchase of Residential Property by Non-Canadians Act, S.C. 2022, c. 10, s. 235.
What Kinds of Properties Are Affected?
The prohibition applies to any residential property situated in Canada that is either: (a) a detached house containing not more than three dwelling units or (b) a semi-detached house, rowhouse unit, residential condominium unit or other similar premises. It also covers certain vacant land zoned for residential or mixed use.
For these purposes, “non-Canadian” is defined as an individual who is neither a Canadian citizen, a permanent resident, nor a person registered as an Indian under the federal Indian Act. To comply with the Act, proof of citizenship must be shown when agreeing to purchase residential property; acceptable forms of proof include citizenship certificates (paper or e-certificates), citizenship cards, and certain documents such as birth certificates and naturalization certificates. However provincial driver’s licenses and health cards are not sufficient.
Exceptions to the Basic Definition
There are regulated exceptions for certain diplomats, foreign nationals, and refugees, and for some temporary residents (e.g. students in authorized programs of study, and those holding specified work permits). These categories of buyers must show proof of eligibility, and are restricted to buying only one residential property.
About Corporations as Buyers
The purchasing ban also applies to any corporation that is incorporated “otherwise than under the laws of Canada or a province”, as well as a corporation registered in Canada, but controlled by a non-Canadian. In other words, the status of the controlling individual behind the corporate entity is key. “Control” is defined to mean holding 3 percent or more of the voting shares, or else actual control of the corporation through ownership, an agreement, or other means.
What About Multiple Buyers?
If there are multiple buyers in an intended real estate transaction, each of them must fall outside the “non-Canadian” definition. The only exception is where a Canadian buyer and his or her non-Canadian spouse want to buy a property together. In these cases, the seller should request proof of marriage (e.g. a Marriage Certificate).
What About Contracts In-Progress?
Although the Act came into force on January 1, 2023, any agreement made prior to this date is grandfathered and is not considered prohibited.
The Act imposes stiff penalties for a breach. Each person involved in the transaction is liable to be fined up to $10,000. This includes individual officers, directors, or agents of a corporation, who may each be liable in their personal capacity for that same amount.
Importantly, a concluded agreement of purchase and sale that contravenes the Act is not rendered void, or even voidable. But, an Ontario court is empowered to force the re-sale of a home that has been improperly transferred to a non-Canadian.
Points to Consider
If you are selling a home, or are a land developer with sales staff, you must verify that your potential buyer is not a “non-Canadian”. Review the originals of a Canadian passport, citizenship card, birth certificate and any other identification documents supplied.
When selling to a corporation, focus on verifying the status of the individual who is put forward as the controlling mind of the company. Obtain documentation confirming eligibility, including the Canadian or provincial/territorial articles of incorporation, certified registers showing the officers, directors and shareholders, and the personal identification of those individuals. Finally, consider adding a Schedule to the agreement, that clearly states that any violation of the Act is considered a default, which entitles the seller to terminate.