[co-author: Okey Ejibe - Articling Student]

The Prohibition on the Purchase of Residential Property by Non-Canadians Act (Act) comes into force on January 1, 2023. It prohibits the purchase of residential property in Canada by non-Canadians unless they are exempted by the Act or its regulations, or the purchase is made in certain circumstances specified in the regulations.

This new legislation will remain in force for two years and is part of the government of Canada's response to soaring housing prices across the country.

Prohibition

The main provision of the Act is its prohibition on foreign ownership of residential property. Section 4(1) of the Act prohibits a non-Canadian from directly or indirectly purchasing any residential property in Canada.

The Act, Section 2 defines "residential property" to mean:

1. a detached house or similar building that contains up to and including three dwelling units, which are in turn defined as a "residential unit that contains private kitchen facilities, a private bath and a private living area"; and
2. a part of a building that is intended to be owned and used as a place of residence. This explicitly includes but is not limited to portions of semi-detached homes, rowhouse units, and residential condominium units.

The same provision defines "non-Canadian" to mean:

1. an individual who is neither a Canadian citizen nor a person registered as an Indian under the federal Indian Act nor a permanent resident;
2. a corporation that is not incorporated under the laws of Canada or a province; or
3. a corporation incorporated under the laws of Canada or a province whose shares are not listed on a stock exchange in Canada and is controlled by an individual or a corporation that is a non-Canadian.

However, Sections 4(2)-(5) provide for exceptions for the following classes of non-Canadians and circumstances:

1. a temporary resident within the meaning of the Immigration and Refugee Protection Act (IRPA) who satisfies prescribed conditions;
2. a protected person within the meaning of Section 95(2) of IRPA;
3. 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 Act, permanent resident, temporary resident or protected person under IRPA;
4. foreign states that purchase residential property for diplomatic or consular purposes; and
5. a non-Canadian who becomes liable or assumes liability under an agreement of purchase and sale of the residential property before the day on which this Act comes into force, January 1, 2023.

We note that there are several key terms in the prohibition and the exemptions that will be left to regulations, which are still to be drafted. Section 8 of the Act grants the federal cabinet the power to make regulations in furtherance of the Act, on the recommendation of the minister and after consultation with the Minister of Finance. The regulations will define "control" and "purchase," as well as prescribing anything that needs to be prescribed.

Consequences of Contravention

It is important to note that under Section 5 of the Act, a contravention of the provisions of the Act does not affect the validity of the sale of the residential property to which the contravention relates. However, the consequences of contravening the Act are as follows:

1. Under Section 6(1), every non-Canadian who contravenes the Act will be guilty of an offence and will be liable on summary conviction to a fine of not more than $10,000. This penalty also applies to every person or entity that attempts to or actually counsels, induces, aids or abets a non-Canadian to directly or indirectly, purchase any residential property knowing that such non-Canadian is prohibited from purchasing the residential property under the Act. This language is broad enough to capture sellers, realtors and professional advisers.
2. If a corporation or entity commits an offence under the Act, anyone related to the entity and who directed, authorized, assented to, acquiesced in or participated in the contravention will be deemed to be a party to and liable for the offence, whether or not the corporation has been prosecuted or convicted under Section 6(2). This would include directors and employees.
3. Under Sections 7(1) and (2), if a non-Canadian is convicted of having contravened the Act, then the superior court of the province in which the relevant residential property is located may, on application of the minister designated for the purposes of the Act, order the residential property to be sold subject to any terms that the court considers appropriate. Upon the sale of the property, the non-Canadian purchaser will not receive more than the amount paid for the property under Section 8(2), and could receive less.

Impact of the Act

The Government hopes that the Act, together with other relevant government policies such as the Underused Housing Tax Act, which recently received royal assent on June 9, 2022, will help to curb the perceived rising numbers of vacant houses owned by foreigners and real estate inflation.

The full impact of the Act will be clearer once the Government releases the draft regulations. The Act could face potential challenges from the provinces in the court system based on federalism and division of power arguments.