Prohibition on the Purchase of Residential Property by Non-Canadians Act
The Prohibition on the Purchase of Residential Property by Non-Canadians Act prohibits non-Canadians from purchasing, directly or indirectly, any residential property in Canada. As discussed in our previous blog, Non-Canadians Will be Prohibited from Buying Canadian Residential Property in 2023, non-Canadian is defined as:
- An inpidual who is not a Canadian citizen, permanent resident of Canada or registered as an Indian under the Indian Act;1
- A corporation that is not incorporated under the laws of Canada or a Canadian province; or
- A private corporation that is incorporated in Canada but that is controlled by a person referred to in paragraph (a) or (b) above.
The Act became effective on January 1, 2023, and was initially scheduled to run until January 1, 2025. In February of 2024, the federal government extended the ban until January 1, 2027.2
Important Amendments to the Act
After the original legislation was enacted, the Act was amended to better accommodate newcomers and businesses contributing to housing development in Canada.
These amendments included:
- Expanding Eligibility for Temporary Workers to Buy Property
Those who hold a work permit or are authorized to work in Canada under the Immigration and Refugee Protection Regulations are eligible to purchase property in Canada if the following two conditions;
- Work permit holders must have 183 days or more of validity remaining on their work permit or work authorization at the time of purchase; and
- They have not purchased more than one residential property.
2. Prohibition No Longer Applicable to Vacant Land
- Vacant land zoned for residential and mixed use can now be purchased by non-Canadians and used for any purpose by the purchaser.
3. Exception for Development Purposes
- Non-Canadians can now purchase residential property for the purpose of "development".
4. Easing Corporation Regulations
- The original legislation stated that if a corporation included 3% of equity value or voting rights held by non-Canadians, it will deem the corporation as non-Canadian.
- The amendments increased this threshold from 3% to 10%.3
You Are Eligible to Buy Property... Now What?
If you meet the eligibility to buy, because you qualify for an exemption or the federal ban doesn't apply to you, you still may be subject to Ontario's 25% Non-Resident Speculation Tax (NRST) on top of your purchase.
The NRST applies on the following transactions:
1. The transaction involves "designated land," which is land containing six or less "single family residences";
2. There is a change in beneficial or legal ownership of that designated land; and
3. The land is conveyed to a "foreign entity" or a "taxable trustee."
- A person is a "foreign entity" if it is a foreign national or a foreign corporation.
- A person can be a "foreign national" if they satisfy the definition under the Immigration and Refugee Protection Act, which is anyone who is not a Canadian citizen or permanent resident.4
Exemptions From the Non-Resident Speculation Tax
An exemption from the NRST may be available for:
- Registered transfers if the transferee is a nominee;
- A protected person or a spouse of a Canadian citizen;
- A permanent resident of Canada;
- A nominee or a protected person.5
If you have applied to become a permanent resident of Canada, but you have not acquired that status at the time your home transaction closes, you must pay NRST unless you are eligible for another exemption. If you become a permanent resident of Canada after the home transaction closes, you may qualify for a rebate of the NRST.6
New Additional 10% Tax on Toronto Homes for Non-Residents
Effective January 1, 2025, the new Municipal Non-Resident Speculation Tax (MNRST) of 10% applies for foreign buyers on the purchase price of certain residential properties in Toronto.7 The exemptions mentioned above that apply to the provincial NRST, also apply to the City's MNRST.8
Selling Property in Canada as a Non-Resident
When selling your property, it is important that you follow the tax reporting rules set by the Canada Revenue Agency (CRA). Section 116 of the Income Tax Act in Canada requires non-residents selling taxable Canadian property to apply for a clearance certificate from the CRA.9
When To Notify CRA of the Disposition
Non-residents are required to notify the CRA within 10 days of the date the property was disposed of, or proposed to be disposed of.10
Penalties For Failure to Notify
Non-residents who sell and fail to notify CRA of the disposition within the 10-day period will be liable to a penalty under subsection 162(7) of the Act.
- This penalty is $25 a day for each day the notification
is late, with a minimum of $100 and a maximum
of $2,500.11
If you do not let the CRA know about your disposition, the purchaser may become liable to pay a specified amount of tax that arises from the disposition on behalf of the vendor. In this case, the purchaser is entitled to withhold 25% (50% on certain types of property) of the proceeds minus the amount of the certificate limit, if any, from the proceeds.12
For further elaboration on selling and section 116 please visit our blog; How Section 116 of the Income Tax Act Can Affect Your Real Estate Transaction.
Takeaway
If you are looking to buy as a non-resident, it is important to consider the financial implications in place at all levels of government. Before signing an agreement of purchase and sale, non-resident buyers should conduct prudent due diligence to determine if they are eligible for any exemptions or rebates and how certain taxes may impact their purchase. If you are looking to sell as a non-resident in Canada, it is important that you follow the tax reporting rules under the Income Act and speak with an accountant.
Footnotes
1. RSC 1985 c.I-5.
2. Government of Canada, "Government announces two-year extension to ban on foreign ownership of Canadian housing"(Feb 4, 2024), online: https://www.canada.ca/en/department-finance/news/2024/02/government-announces-two-year-extension-to-ban-on-foreign-ownership-of-canadian-housing.html
3. Regulations Amending the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations, (2023), C Gaz II, Volume 157, Number 8. https://gazette.gc.ca/rp-pr/p2/2023/2023-04-12/html/sor-dors66-eng.html
4. SC 2001, c. 27.
5. Government of Ontario, "Non-Resident Speculation Tax," online: https://www.ontario.ca/document/non-resident-speculation-tax
6. Ibid.
7. City of Toronto, "Municipal Land Transfer Tax & Municipal Non-Resident Speculation Tax," online: https://www.toronto.ca/services-payments/property-taxes-utilities/municipal-land-transfer-tax-mltt/municipal-land-transfer-tax-mltt-information/
8. Ibid.
9. R.S.C., 1985, c. 1 (5th Supp.)
10. Government of Canada, "Disposing of or acquiring certain Canadian property"(27 June 2023), online: https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/disposing-acquiring-certain-canadian-property.html
11. Ibid.
12. Ibid.
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.
