Prohibition on the Purchase of Residential Property by Non-Canadians

December 6, 2022

By Brian Babcock

If you are planning to transfer residential real estate to a non-Canadian, you should do so before December 31st, 2022.

On January 1st, 2023, a new federal law – the Prohibition on the Purchase of Residential Property by Non-Canadians Act – comes into force.

The wording of the Act is not clear, and there is a high risk of confusion. The Act bans the “purchase, directly or indirectly” of residential property. This wording potentially creates confusion about things like gifts, including inheritances. You may think they should be exempt, but a 2016 Alberta Court of Appeal tobacco tax case decided that loans, gifts, or other arrangements might be anti-avoidance mechanisms. Will this apply to this Act? The inclusion of “indirectly” suggests broad application.

As the law currently stands, this will be a 2-year ban on the purchase of residential real estate anywhere in Canada by anyone who isn’t Canadian with very narrow exceptions for categories such as permanent residents and spouses of Canadian citizens. There is no guarantee that the 2 years might not be extended if the government decides that continuing it is good for housing or the economy in general. Remember, income tax was originally a temporary war measure.

The definition of residential property appears to include almost every type of residential property imaginable including seasonal property such as cottages camps or recreational land.

The non-Canadians to whom this applies appears to include beneficiaries of estates, though this is one of the areas where the wording is unclear. This may create a severe problem during the prohibition. In dealing with the bequests of real property or the settlement of estates that are primarily land. This will affect not only speculation property but also resorts and cottage properties. If title is in the name of an elderly family member, you may wish to consider putting together a transaction within the next month.

Violating this Act can result in a fine of up to $10,000 and the forced sale of the real property. That makes it very risky to take a chance on the interpretation of the Act.

A lawyer is not allowed to recommend or advise you as to any means to avoid the Act without being exposed to a similar fine of up to $10,000.

This Act was designed primarily to limit land speculation in or near major centers such as Toronto and Vancouver, but it applies even here in Northwestern Ontario where if we have lots of one thing, it’s land.

Various interest groups are lobbying the federal government to attempt to have them repeal or amend the Act to something more sensible but unless that happens, we are stuck with it.

If an agreement of purchase and sale is entered into prior to January 1st, 2023, we can close the deal on your behalf.

Contact one of our real estate lawyers as soon as possible to see how we might be able to help if this new law may affect you.