Foreign Purchase Ban: An Update
The Canadian government had planned to initiate a ban on home purchases by foreign nationals, with exemptions for permanent and temporary residents, including temporary workers and international students. Some changes have taken place in the law that you should be aware of as you plan your real estate investments. The purpose of these changes is to increase the flexibility that businesses and newcomers have when it comes to growing the housing supply in Canada. These changes will also provide support to families and individuals looking to set up a permanent life in Canada by purchasing homes in their communities sooner. The changes in the regulations became effective on March 27, 2023.
According to the CMHC, the term “purchase” means to “acquire, or agree conditionally or unconditionally to acquire, a legal or equitable interest…in a residential property.” For the purposes of the law, this also includes conditional offers to buy presidential property, purchases through nominee buyers and leases that are set up with purchase options.
The ban no longer applies to work permit holders (with some exceptions)
Persons with a work permit or other forms of authorization to work in Canada pursuant to the Immigrant and Refugee Protection Regulations are now permitted to purchase residential property. However, work permit holders must have at least 183 days remaining on their work permit or authorization when they purchase the property, and they are limited to owning one residential property. The current rules about prior work experience and tax filings stopped with this new change.
There is an exemption for purchasing for development purposes
Non-Canadians are allowed to purchase residential property for development purposes. The exception was already available to publicly traded corporations, and now that exception also extends to publicly trade entities that are formed under provincial or national Canadian law but are controlled by a non-Canadian. The CMHC defines development as “the process of evaluating, planning and undertaking of alteration 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 ban no longer applies to vacant land
Non-Canadians are now allowed to purchase vacant land that is zoned for mixed use and residential, and the purchaser can use the land for any legal purpose, including developing residential property.
The foreign control threshold is now 10 per cent
The original provision had set the threshold at 3 per cent for privately held corporations or privately held entities that were formed under provincial or national Canadian law and controlled by a non-Canadian. This brings the law into alignment with the Underused Housing Tax Act and its definition of “specified Canadian Corporation.”
The government has also made a practice of only applying the ban to residential properties that are located in a “census agglomeration” or “census metropolitan” area. The first term refers to an area with a core population of 10,000 or greater, based on the Census of Population Program. The second refers to an area with 100,000 or more people, of whom 50,000 or more live in the core, based on the Census of Population Program.
The purpose of this is to make purchasing of recreational properties still available for non-Canadians.
Some other exemptions to the foreign purchase ban include the following:
- Acquisition of a real right or an interest due to divorce, separation, gift or death
- Rental of a residential unit for the purpose of tenant occupation
- Transfer of property according to terms of trusts set up before the Act came into force
- Transfer of property coming from the exercise of a secured right or security interest by a secured creditor
Consequences for violating the act include fines as high as $10,000 per entity or person, and the court can also order that the property be sold. The violating purchaser can only receive proceeds up to the amount that was paid to make the offending purchase. The proceeds would also satisfy the fine, the government costs in pursuing the violation, with leftover funds going to the Receiver General of Canada.