Effective January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act1 (the "Act") and Regulations2 (the "Regulations") prohibit non-Canadians from directly or indirectly purchasing residential property in Canada for a period of two years. As we noted in our March Bulletin, there is ambiguity as to the scope and application of the prohibition under the Act. Industry groups have also voiced concerns regarding the potential unintended consequences of the Act and Regulations on commercial transactions involving real estate.
"To enhance the flexibility of newcomers and businesses looking to add to Canada's housing supply," and to clarify the scope of the prohibition, the Minister of Housing and ersity and Inclusion recently announced amendments to the Regulations (the "Amendments").3 These amendments became effective on March 27, 2023.
Key Amendments
1. Repeal of the Portion of the Original "Residential Property" Definition relating to Zoning for Residential or Mixed Use
Subsection 3(2) of the Regulations4 provided that "residential property" included "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". This had the unintended effect of capturing lands that are zoned for residential use or mixed use but are still to be developed and used for non-residential purposes.
Developers of residential projects can now breath a little easier, as the Amendments repeal Subsection 3(2) in its entirety. Non-Canadians can now purchase vacant lands or any other lands which do not contain a detached house, condo unit, dwelling unit or similar residential premises, even if such lands are zoned residential or mixed-use.
2. New Definition of "Control"
The Amendments change the threshold of "control" for the purposes of determining whether a corporation or entity is considered to be "non-Canadian" in Subsection 1(a) of the Regulations5 from direct or indirect ownership constituting 3% or more of equity value or voting rights of a corporation or entity, to 10% or more of the equity value or voting rights of a corporation or entity.
3. Exception for Publicly Traded Entities
While the original wording of the Act provided an exemption for publicly traded corporations listed on a designated stock exchange in Canada and "controlled" by a non-Canadian, Subsection 2(b) of the Regulations6 created confusion by prescribing that an "entity" formed under the laws of Canada or a province and "controlled" by a non-Canadian would be deemed to be non-Canadian and therefore, subject to the prohibition. In addition, it was unclear under the Act and Regulations if the exemption applied only to "corporations" or if it extended to other publicly traded Canadian entities, like REITs and limited partnerships.
The Amendments amend Subsection 2(b) of the Regulations to clarify that the exemption now applies to all entities formed under the laws of Canada or a province, which are listed on a Canadian designated stock exchange and controlled by a non-Canadian, including REITs. This is a much needed clarification that will hopefully help the real estate market function more normally, despite the restrictions of the Act.
4. New Exemption for the Acquisition of Residential Property by non-Canadians for Development Purposes
Notably, the Amendments also revise Subsection 4(2) of the Regulations7 to provide that an acquisition by a non-Canadian of residential property for the purposes of development, will not be considered a "purchase" under the Act.
While the Amendments do not define what constitutes "development", the Canada Mortgage and Housing Corporation ("CMHC") provides some guidance on the application and interpretation of this new exception (here), which is non-binding and in the form of Frequently Asked Questions ("FAQs"). CMHC's FAQs on "development" are somewhat targeted at what is typically thought of as real estate development (e.g., construction or renovation of a building or other improvement), but do not clearly address other commercial uses of properties that involve an alteration or improvement to real property. We understand that CMHC will be updating their FAQs to address development activities that may not be commonly considered to be "development".
5. Work Permit Holders Exemption
Welcome news to foreign workers and refugees, the Amendments to Subsection 5(b) of the Regulations8 now provide an exemption for iniduals who hold a work permit or are authorized to work in Canada under the Immigration and Refugee Protection Regulations. If such iniduals have 183 days or more of validity remaining on their work permit or work authorization at the time of purchasing residential property and if they have not already purchased a residential property in Canada, they will now be exempt from the Act.
Conclusion
The Amendments provide some further clarity and address a number of concerns that the Act and Regulations raised. Nonetheless, non-Canadian purchasers, investors and entities should continue to remain cautious for transactions involving Canadian residential property and seek legal advice when needed.
Note: The official text of the revised regulations was published in the Gazette on April
Footnotes
1. Prohibition on the Purchase of Residential Property by Non-Canadians Act, SC 2022, c 10, s 235.
2. Prohibition on the Purchase of Residential Property by Non-Canadians Regulations, SOR/2022-250, ss 3(2).
3. Regulations Amending the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations, https://assets.cmhc-schl.gc.ca/sites/cmhc/professional/housing-markets-data-and-research/housing-research/consultations/prohibition-purchase-residential-property-non-canadians-act/prohibition-purchase-residential-property-non-canadians-regulations-amendment.pdf?rev=cf655bc0-d1a9-48a1-a0d5-6ea9b32788e9
4. Supra, note 2, ss 3(2).
5. Supra, note 2, ss 1(a).
6. Supra, note 2, ss 2(b).
7. Supra, note 2, ss 4(2).
8. Supra, note 2, ss 5(b).
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.
