New regulatory amendments to Canada’s Prohibition on the Purchase of Residential Property by Non-Canadians Act address and lessen the rules’ impacts on commercial transactions and property development. The Act prohibits the purchase of residential real estate by non-Canadians, either directly or indirectly, for a two-year period that began on January 1, 2023.
On March 27, 2023, the Minister of Housing and Diversity and Inclusion introduced amendments which attempt to provide further clarity on this new prohibition. While not all of the submissions from the real estate industry have been adopted, the amendments represent a substantial improvement permitting commercial transactions, which were obviously not intended to be caught by the Act, to proceed without prohibition. Nonetheless, parties to a transaction involving real estate should still be wary of the Act before proceeding, especially if a residential property may be involved.
Zoning no longer a criteria
Section 3(2) of the Regulation originally prohibited “non-Canadians” (as defined under the Act) from purchasing commercial real estate properties that were zoned residential or for mixed use. Scrutinizing the zoning of a property to define it as a “residential property” also inadvertently captured significant amounts of land used for commercial purposes such as industrial warehouses, manufacturing facilities, office buildings and shopping centres.
Subsequently, Canada Mortgage and Housing Corporation (CMHC) issued a clarification that this prohibition was intended to capture only vacant land that is zoned residential or mixed use. The amendments have now repealed this provision altogether so that the prohibition no longer applies to the purchase of property, whether vacant or not, that does not contain any habitable dwellings and is zoned for residential and mixed use.
Threshold of control increased
The definition of “control” of a corporation or entity in the Regulation limited a far larger group of corporations from participating in real estate transactions involving residential property than what was likely intended. Previously, a corporation was deemed a non-Canadian under the Act if it was “controlled” by more than 3 per cent of non-Canadians. This has now been addressed in paragraph 1 of the amendments, where the threshold for “control” of a corporation or entity was increased from 3 per cent to 10 per cent.
Publicly traded Canadian REITs and limited partnerships excluded
The amendments broaden the scope of real estate transactions permitted under the Act for publicly traded entities. Section 2(b) of the Regulation previously excluded publicly traded corporations listed on a designated Canadian stock exchange from the definition of “non-Canadians.” However, this narrow exception failed to also exclude publicly traded non-corporate entities listed on a designated stock exchange, such as Canadian real estate investment trusts (REITs) and Canadian limited partnerships.
Accordingly, these publicly traded non-corporate entities had to meet the control threshold to purchase residential property. Pursuant to the amendments, Canadian REITs and other publicly traded Canadian entities (including limited partnerships) can now participate in real estate transactions that involve residential property, without meeting any control threshold.
Exception for development
The most sweeping change contained in the amendments is the introduction of an exception for the acquisition by a non-Canadian of residential property for the purposes of “development.” The amendments do not define “development,” but CMHC has published a guideline (in the form of Frequently Asked Questions) that sets out criteria and indicia of what could constitute “development.”
The CMHC defines “development” as “the process of evaluating, planning and undertaking of alterations or improvements (with or without a change in use) to a residential property or the land on which the residential property is located and, for greater certainty, includes redevelopment of an existing building.” The key element is the existence of “good faith intention at the time of purchase.”
Wider pool of purchasers who hold work permits
The amendments revise the requirements for non-Canadians who hold a work permit under the Immigration and Refugee Protection Regulations to become eligible to purchase residential property. Such 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 the purchase of their residential property, as long as they have not purchased more than one residential property. The amendments remove the previous requirement of having filed tax filings for a minimum period of three years within the preceding four years and having worked full time in Canada.
The authors practice real estate law with Aird & Berlis LLP in Toronto.
