Understanding the Temporary Ban on Foreign Investment in Canadian Housing
On January 1, 2023, a law that prohibits “non-Canadians” from buying residential property in Canada will come into effect for a period of two years until December 31, 2024. The law, known as the Prohibition on the Purchase of Residential Property by Non-Canadians Act (‘Act’), was introduced by the federal government of Canada in Budget 2022. As many Canadians worry about affordable housing, this law is one of the federal government’s purported attempts to address concerns that foreign investment is driving up housing costs in Canada.
The Act defines “non-Canadian” as follows:
- Individuals who are neither Canadian citizens nor permanent residents of Canada nor a person registered as an Indian under the Indian Act;
- Corporations incorporated outside Canada;
- Corporations incorporated under the laws of Canada or a province whose shares are not listed on a stock exchange in Canada and that is controlled by an individual who is neither a Canadian citizen nor permanent resident or a corporation incorporated outside Canada;
- A prescribed person or entity (prescribed by regulation).
Exemptions to the Act
The Act exempts certain persons from the Act as follows:
- Temporary residents within the meaning the Immigration and Refugee Protection Act who satisfy prescribed conditions;
- Protected persons;
- An individual who is a non-Canadian and who purchases residential property in Canada with their spouse or common law partner who is a Canadian citizen or permanent resident or person registered as an Indian under the Indian Act;
- A person of a prescribed class of persons.
Consequences of Violating the Act
Under section 6 of the Act, anyone who violates the law or assists anyone in violating the law will be guilty of an offence and liable of a fine up to $10,000. The law will have a significant effect on real estate developers, lawyers, real estate agents and other affiliated professionals.
Impact of the Ban
A recent report from Royal LePage indicates that 75% of American citizens living in border towns and owning recreational property in Canada, made their purchases after the ban was announced.
Bob Aaron, a real estate lawyer in Toronto, suggests that the new law may result in constitutional challenges based on federalism and the division of powers, while other critics argue that the ban will have little impact on housing affordability. In 2018, TD Bank’s chief economist, Beata Caranci warned that banning foreign buyers can lead to longer housing market downturns.
As Canada’s real estate industry braces itself for the changes, certain regulations to the law remain undisclosed, causing ongoing uncertainty. When the law comes into effect, those involved in Canada’s real estate industry will need to ensure they do their due diligence to avoid becoming a party to an offence in the Act.
For more information on this topic and/or if you are interested in moving to Canada, the legal team at Race & Company LLP is available to assist you with your immigration, real estate and business law needs. Contact one of our knowledgeable lawyers today.
