Last updated on March 28, 2023
The Parliament of Canada passed legislation – the Prohibition on the Purchase of Residential Property by Non-Canadians Act on June 23, 2022. This law prevents non-Canadians from buying residential property in Canada for 2 years starting on January 1, 2023.
The Prohibition on the Purchase of Residential Property by Non-Canadians Act applies to direct or indirect purchases of residential property. This includes purchases made through vehicles such as partnerships, trusts or other entities seeking to avoid the prohibition.
There are some situations where this doesn’t apply:
- when somebody acquires an interest in a residential property because of a divorce, separation, gift, or death
- when a dwelling unit is rented to a tenant who will occupy the unit (Does that mean foreign investors can still purchase? We are waiting for more context.)
- when the transfer is resulting from the exercise of a security interest or secured right by a secured creditor
Amendments to Foreign Buyer Ban (Effective March 27, 2023)
Due to lobbying efforts by CREA and other groups, the government has made some amendments to the Regulations accompanying the Prohibition on the Purchase of Residential Property by Non-Canadians Act.
1. Enable more work permit holders to purchase a home to live in while working in Canada.
The amendments will allow those who hold a work permit or are authorized to work in Canada under the Immigration and Refugee Protection Regulations to purchase residential property.
Work permit holders are eligible if they have 183 days or more of validity remaining on their work permit or work authorization at time of purchase, and they have not purchased more than one residential property. The current provisions on tax filings and previous work experience in Canada are being repealed.
2. Repealing existing provision so the prohibition doesn’t apply to vacant land.
Repealing section 3(2) of the regulations, so the prohibition does not apply to all lands zoned for residential and mixed use. Vacant land zoned for residential and mixed use can now be purchased by non-Canadians and used for any purpose by the purchaser, including residential development.
3. Exception for development purposes.
This exception allows non-Canadians to purchase residential property for the purpose of development. The amendments also extend the exception currently applicable to publicly traded corporations under the Act, to publicly traded entities formed under the laws of Canada or a province and controlled by a non-Canadian.
4. Increasing the corporation foreign control threshold from 3% to 10%.
For the purposes of the prohibition, with regards to privately held corporations or privately held entities formed under the laws of Canada or a province and controlled by a non-Canadian, the control threshold has increased from 3% to 10%. This aligns with the definition of ‘specified Canadian Corporation in the Underused Housing Tax Act.
Who does this ban really affect?
The Act prohibits non-Canadians from purchasing residential property in Canada for 2 years. This act doesn’t affect Canadians and permanent residents.
The Government is proposing to provide or to clarify existing legislative exceptions in the regulations for the following groups of people:
- Indigenous peoples;
- International students on the path to permanent residency;
- Individuals with work permits residing in Canada (with very limited restrictions);
- Individuals fleeing international crises and other vulnerable populations; and
- Accredited members of foreign missions in Canada.
- Non-Canadians spouses and common-law partners
International Students with Study Permits
- Is pursuing a program of authorized study at a designated learning institution as defined in s. 211.1 of the Immigration and Refugee Protection Regulations;
- Would be eligible for a work permit issued under subparagraph 200(1)(c) (i) or (i.1) for work described in paragraph 205(c) of the Regulations upon completion of the program;
- Has filed a Canadian income tax return for each of the five taxation years preceding the year in which the purchase is made; and
- Has been physically present in Canada for a minimum of 275 days in each of the five calendar years preceding the year in which the purchase is made.
The exception would be limited to the purchase of residential property not exceeding a purchase price of $500,000, anywhere in Canada.
Examples of documentation to demonstrate eligibility for this exception could include a letter from a designated learning institution containing enrollment information, a Notice of Assessment from the Canada Revenue Agency, and documentation commonly relied on elsewhere to demonstrate a physical presence in Canada, such as rental agreements or receipts, utility bills, and entry and exit records associated with travel.
Foreign Nations with Work Permits
- Holds a valid work permit as defined in section 2 of the Immigration and Refugee Protection Regulations, or is otherwise authorized to work in Canada in accordance with section 186 of the Regulations;
- They have 183 days or more of validity remaining on their work permit or work authorization on the
date of purchase, and - They have not purchased more than one residential property.
Examples of documentation to demonstrate eligibility for this exception could include a work permit or authorization to work, a letter from an employer containing work experience in Canada.
Refugees
- They have been given refugee protection or are a protected person under the Immigration and Refugee Protection Act
Refugee claimants and individuals fleeing international crises
- They have made a claim for refugee protection in accordance with the Immigration and Refugee Protection Act, if that claim has been found eligible and referred to the Refugee Protection Division; or
- They have received temporary resident status in accordance with the Immigration and Refugee Protection Act based on humanitarian public policy considerations to provide a safe haven to those fleeing conflict.
Accredited members of foreign missions in Canada
- They hold a passport that has a valid diplomatic, consular, official, or special representative acceptance issued by the Chief of Protocol of Canada.
Non-Canadians spouses and common-law partners
- They purchase residential property in Canada with their spouse or common-law partner who is a Canadian citizen, a person registered under the Indian Act, a permanent resident or a non-Canadian for whom the prohibition does not apply.
What types of residential property are exempt from the prohibition on the purchase of residential property by non-Canadians?
The prohibition applies to residential property, which includes detached houses or similar buildings of one to three dwelling units, as well as parts of buildings such as semi-detached houses, condominium units, or other similar premises. The law does not prohibit the purchase of larger buildings with 4 or more dwelling units.
The Regulations include an exception for any residential property found outside of a Census Metropolitan Area or Census Agglomeration as identified in Statistics Canada’s Standard Geographical Classification 2021.
- Both Census Metropolitan Areas and Census Agglomerations are formed by 1 or more adjacent municipalities centered on a population centre, or the core.
- A Census Metropolitan Area must have a total population of at least 100,000 of which 50,000 or more must live in the core and a Census Agglomeration must have a core population of at least 10,000.
- Whether a residential property is located within a Census Metropolitan Area or a Census Agglomeration can be determined by accessing the Standard Geographical Classification (SGC) reference maps. More detailed maps of CMAs and certain CAs are also available by accessing Statistics Canada’s Census Tract reference maps.
The Government intends to exclude recreational properties from the prohibition. As such, the Government is proposing to provide an exception in the regulations for any residential property located outside of a Census Metropolitan Area or Census Agglomeration.
What is the penalty?
Any person or entity that knowingly assists a non-Canadian in contravening the prohibition, is guilty of an offence and liable on summary conviction to a fine of up to $10,000. (Honestly, is this even enough to stop people from purchasing? 10K when the average price in GTA is over 1 million.)
If a non-Canadian is convicted of having contravened the prohibition, the superior court of the province in which the residential property to which the contravention relates is situated may, on application of the responsible Minister, order the residential property to be sold.
The Act establishes that any such court-ordered sale will result in the non-Canadian receiving no more than the purchase price paid for the residential property.
Roles of the third parties, like real estate agents or lawyers in enforcing the Act
It is the responsibility of non-Canadian buyers themselves to ensure they are eligible to purchase a residential property while the Prohibition on the Purchase of Residential Property by Non-Canadians Act is in force.
The Act provides industry professionals with the flexibility to manage compliance within their respective circumstances and does not impose information collection, processing or reporting requirements for lawyers, notaries, real estate agents or other professionals.
It is for these professionals to determine what, if any, measures may be required for them to meet their professional responsibilities and duties to their clients.
Is the foreign buyer ban the answer to the housing crisis?
To pretend foreign buyers don’t have an impact on Canada’s real estate would be naive, but is it the reason why real estate has become so unaffordable for domestic homeowner hopefuls?
Canada has been a safe and secure country to invest in. We have strong financial institutions in a great and diverse country that has rewarded homeowners over the years with great returns. In fact, 70% of the country owns their home. If you look at the historic growth of housing prices, you’d wish you had bought as many properties as possible. But now, prices seem so out of reach for many people.
In the last federal election, the liberals promised to temporarily ban new foreign ownership in Canadian real estate for the next 2 years. This is supposed to give Canadians more access to purchasing homes. Housing has been a hot topic over the last few years and it’s been an easy scapegoat for politicians to put blame on foreigners.
Ben Meyers, a Canada-based real estate advisory company said “Given that they can’t vote and these bans are supported via the systemic racism that still exists in this country, anti foreign buyer sentiment gained political momentum.” Let that one sink in.
How big of an impact do foreign buyers have on the market?
Research has shown that in 4 provinces tracked, about 1 in 10 recently built condos and 1 in 20 homes have a non-resident owner. BC and Ontario have the most non-resident investors that 1 in 10 non-resident owners have multiple properties.
To think that foreign owners aren’t contributing to the housing crisis would be naive, but to also think that taking out this 10% is going to make housing affordable would also be naive.
In a 2017 StatsCan report, non-residents owned 3.4% of all residential properties in Toronto and the value of the properties accounted for 3% of total residential property value in the Toronto area. In comparison, in Vancouver, non-resident owners accounted for 4.8% of properties and 5.1% of total property value. Foreign ownership is more prevalent for condo apartments in Canada, accounting for 7.2% of condo ownership in Toronto and 7.9% in Vancouver.
Another interesting note is that the median assessed value of non-resident owned properties is higher than resident owners. In other words, non-resident owners buy more expensive properties than resident owners. Maybe it’s their investment, maybe it’s their offshore bank account. Either way, they’re bringing in lots of money into our economy.
We already have a foreign buyer tax that was at 15% and increased to 20% in the GTA. But to wealthy foreign buyers, this is still a discount when comparing whether they should buy property in the US or Canada.
With the exchange rate, Canadian dollar is 30% cheaper than the US, even if they pay the tax, they’re still getting a 10-15% discount to buy in Canada. Plus who wants to invest in the states when their housing market isn’t growing like it is in Canada?
Fun fact, domestic investors own nearly a third of homes in major Canadian markets. According to StatsCan, in Ontario, multiple property owners accounted for 31% of all homes.
What are the solutions to the housing crisis?
The housing crisis is multifaceted and quite complex. With many different factors at play. In any country that has significant immigration, housing prices are climbing.
Canada is having historic immigration levels which are expected to increase over the coming years – on pace to bring in over 450k new immigrants this year, the highest ever. On top of that, Canada will aim to welcome 465,000 new immigrants in 2023. The target will rise to 485,000 new immigrants in 2024. It will further rise to 500,000 new immigrants 2025.
On the other hand, we aren’t building enough homes to fulfil that demand – only building 250k homes each year.
We need immigrants for Canada and our economy to grow. We have a shortage of labour. The solution in my opinion isn’t stopping immigrants from coming.
The solution is quite simple. Build more homes.
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Got more questions about whether it’s a good time to buy or sell real estate for you and your family?
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