Things are only getting worse for non-residents. Not only was the Province of Ontario’s non-resident speculation tax increased to 25% as of October 25, 2022, but the federal government’s Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) became effective as of January 1, 2023 for a two year period. The legislation prohibits a “non-Canadian” from purchasing a “residential property” in Canada. The prohibition does not apply to purchase and sale agreements that were signed before January 1, 2023, nor does it invalidate agreements entered into by non-Canadians after the legislation came into effect.
Penalties for contravention of the Act include fines of up to $10,000, and an order for the sale of the property. In the event that the Minister responsible seeks a court order for the sale of a residential property purchased in contravention of the Act, a non-Canadian may not receive proceeds of sale in excess of the purchase price for the property. A non-Canadian is not only prevented from realizing a gain on a forced sale, but purchase transaction costs (ie, Land Transfer Tax) cannot be recovered. Note also that the potential for liability extends to every person who counsels, induces, aids or abets a non-Canadian to purchase any residential property knowing that the non-Canadian is prohibited from doing so. In the case of corporations, liability may attach to officers, directors or people authorized to exercise managerial or supervisory functions. While it may seem to be good news that agreements of purchase and sale with non-Canadian buyers remain valid, the potential that a vendor may face penalties for inducing, aiding or abetting non-Canadian purchasers is certainly a concern for vendors.
According to the Act and its regulations, non-Canadians include: (a) individuals who are neither Canadian citizens nor persons registered as Indians under the Indian Act, nor permanent residents; (b) corporations that are incorporated otherwise than under the laws of Canada or a province; (c) corporations incorporated under the laws of Canada or a province that are not listed on a Canadian stock exchange and are controlled by a person referred to in (a) or (b); (d) other entities, including real estate investment trusts, formed otherwise than under the laws of Canada or a province ; and (e) entities formed under the laws of Canada or a province that are not listed on a Canadian stock exchange and are controlled by a person or entity referred to in (a), (b) (c) or (d). With the amendments to the regulations made as of March 27, 2023, the definition of control for a corporation or other entity means ownership of 10% or more of the equity or voting rights or control in fact.
Residential properties include detached buildings with up to three residential units, as well as semi-detached buildings, row house units and residential condominiums, within either a census metropolitan area (having a population of at least 100,000, 50,000 or more of whom live in the area’s core) or a census agglomeration (having a core population of at least 10,000). Regulations were changed as of March 27, 2023, so that the prohibition does not extend to vacant land, even if such lands are zoned mixed-use or residential, nor to residential land purchased for the purpose of development. This is of course a welcome and important change for non-Canadian developers, although clarification from the government of what exactly constitutes “development” would be helpful.
Other exceptions include:
• the acquisition of property from death, divorce, separation or a gift;
• the rental of a dwelling unit;
• the transfer resulting from the exercise of a security interest by a secured creditor, such as the exercise of a mortgage foreclosure by a non-Canadian mortgage lender;
• temporary residents enrolled in an authorized course of study at a designated learning institution who were physically present in Canada for 244 days of each of the last 5 years, purchase no more than 1 property at a price of not more than $500,000;
• temporary residents who have a work permit as defined in s. 2 of the Immigration and Refugee Protection Regulations, or who are authorized to work in Canada under s. 186 of those regulations who have purchased no more than 1 property and have 183 or more days of validity on their work permit or work authorization at the time of purchase;
• foreign diplomats and consular officials; and
• foreign nationals with valid temporary resident status, whose temporary resident visa was issued, or temporary resident status was granted, following an exemption which was justified based on public policy considerations to provide safe haven to those fleeing conflict; and
• refugee claimants, if those claims have been found eligible and referred to the Refugee Protection Division.
Suggestions:
Where there is doubt, buyers should carefully consider whether they are non-Canadians within the meaning of the Act before entering into an agreement of purchase and sale. Builders/developers are collecting information to determine whether their buyers are non-Canadians, and they are updating their purchase and sale agreements to include representations, warranties and indemnities from their purchasers to ensure they are not inducing, aiding or abetting non-Canadian purchasers. Agents/brokers and other advisers should be aware of the Act. Those advising vendors of resale residential properties should consider recommending to their clients to inquire about whether a buyer is a non-Canadian and to obtain representations similar to what builders are now doing.