Proposed in the Federal Budget of 2022, and passed in June of 2022, the Government of Canada has enacted the Prohibition on the Purchase of Residential Property by Non-Canadians Act1 (the "Act"). As is made clear by the title, the Act prohibits the purchase of Canadian residential property by non-Canadians, directly or indirectly. 'Indirectly' refers to scenarios where a purchase is attempted through a trust, partnership, or an unincorporated association. Interestingly, the Act overrides section 34 of the Citizenship Act2, which otherwise explicitly grants this right to non-Canadians. The Act will be enforced for a two-year period beginning January 1, 2023 and does not apply if a non-Canadian becomes liable or assumes liability under an agreement of purchase of sale of residential property before this date.3
To understand the extent of the application of the Act to potential purchasers, it is important to pay close attention to the Act's definition of a "non-Canadian". The definition is as follows:
- an individual who is not a Canadian citizen, permanent resident of Canada or registered as an Indian under the Indian Act,4
- a corporation that is not incorporated under the laws of Canada or a Canadian province,
- a private corporation that is incorporated in Canada but that is controlled by a person referred to in paragraph (a) or (b) above.
In addition, "purchase" means to acquire or agree conditionally or unconditionally to acquire a legal or equitable interest, or an immovable real right in a residential property. There have been proposals to preclude certain situations under this term, specifically those pertaining to an acquisition resulting from divorce or separation, the rental of a residential dwelling unit, or an acquisition resulting from succession. These proposals are expected to be included in a set of Supporting Regulations (the "Supporting Regulations") that will be released to provide additional detail regarding the application of the Act.
Exemptions
As is common to many laws and regulations, the Act provides for certain exemptions. These exemptions include:
- temporary residents within the meaning of the Immigration and Refugee Protection Act5 who satisfy prescribed conditions set out in the Supporting Regulations;
- a refugee;
- an individual who is a non-Canadian and who purchases residential property in Canada with their spouse or common-law partner if the spouse or common law partner is a Canadian citizen, person registered as an Indian under the Indian Act6 permanent resident or person referred to in paragraph (a) or (b) above; or,
- a person of a prescribed class of persons under supporting regulations.7
Penalties, Enforcement and Liability
Under section 6(1) of the Act, anyone who contravenes or counsels, induces, aides or abets a contravention of the Act, or attempts any of the above, is guilty of a summary conviction of a fine of not more than $10,000.
Additionally, if the offence is committed by a corporation, then any officer, director, or agent or other authorized individual that "directed, authorized, assented to, acquiesced in or participated in" the commission of the offence is a party and is held equally liable, regardless of whether the corporation was prosecuted.8
Note that a contravention of the Act will not void a contract to purchase residential property from an innocent vendor. However, if a non-Canadian is convicted of having contravened the Act, a court may order that the property be sold in a prescribed manner and under prescribed conditions. Subsection 8(2) of the Act indicates that when a court orders the sale of residential property bought by a non-Canadian in contravention of the Act, the non-Canadian cannot receive more than the purchase price paid for the property from the proceeds of sale.
Given the implications of the Act, individuals who are involved in the real estate industry, such as real estate agents, mortgage brokers and lawyers, should take extra care to ensure that they confirm the residential status of purchasing clients. Real estate professionals should independently verify their clients' identity, document their clients' Canadian status, and have the clients confirm their status in writing.
Real estate professionals acting for the vendor in a transaction should also be wary about contravening the Act unintentionally. Even though it may not be the direct responsibility of the selling party to verify the Canadian status of the purchaser, do not be quick to conclude liability may not extend that far. It would be good practice to include certain provisions within an Agreement of Purchase and Sale to shield the selling party from potential liability at the outset of the transaction.
Footnotes
1. SC 2022, c. 10 s. 235
2. RSC, 1985 c. C-29.
3. Supra note 1, s. 4(5). [emphasis added]
4. RSC 1985 c.I-5.
5. SC 2001 c.27.
6. Supra note 5.
7. Supra note 1, s. 4(2).
8. Ibid, s. 6(2).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
