April 2023 Update: Amendments to the Prohibition on the Purchase of Residential Property by Non-Canadians Act’s Accompanying Regulations
This bulletin is an update to our previous Bulletin published in January 2023 on the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”).
The Act came into force on January 1, 2023. The Prohibition on the Purchase of Residential Property by Non-Canadians Act Regulations (the “Regulations”) complemented the Act setting forth specific exceptions, definitions, and clarifications required to implement the prohibition.
Given the significant stakeholder’s feedback and to enhance the flexibility of newcomers and businesses purchasing real property in Canada, the Government of Canada made amendments to the Regulations providing changes to the Act. These amendments came into force on March 27, 2023.
The five amendments were as follows:
Work permit holders in Canada to purchase residential property;
Repeal of vacant land/mixed use zoning rule;
Acquisition of residential property for development purposes;
Increasing the corporation foreign control threshold from 3% to 10%; and
Expansion of Stock Exchange Exemption.
1. Work permit holders in Canada
The amendments will allow those who hold a valid work permit or are authorized to work in Canada without a permit, under the Immigration and Refugee Protection Regulations, to purchase residential property. The provisions on tax filings and previous work experience in Canada have been repealed.
Work permit holders are eligible to buy residential property in Canada 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.
2. Repeal of vacant Land/mixed use zoning rule
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.
The amendments repeal section 3(2) of the Regulations that previously expanded the definition of “residential property” to include any land that does not contain any habitable dwelling, that is zoned for residential use or mixed use, and that is located within a census agglomeration or a census metropolitan area.
3. Acquisition of residential property for development purposes
This exception now allows non-Canadians to purchase residential property for the purpose of development.
Canada Mortgage and Housing Corporation (“CMHC”) has recently provided some clarification on the meaning of “development” indicating that “it refers to the process of evaluating, planning and undertaking of alterations or improvements to a residential property, or the land on which the residential property is located, whether or not there will be a change in the use of the property. An alteration or improvement does not have to result in the property being used for its highest and best use in order to constitute “development.” The application of the development exemption does not depend on the character of the development or the resulting use, provided it is a true development or redevelopment, as opposed to mere repairs, renovations, remodeling or other similar modifications.” However, where an expansion or remodel is so extensive that it is tantamount to the construction of a new building or a change of use, for example because it creates a new residential property or other types of new and independently usable premises, this would constitute “development”.
For example, CMHC has indicated that steps such as expanding an existing dwelling unit, adding a porch, deck or patio, or completing an unfinished basement all do not constitute “development.” Further, purchasing residential property for the purposes of leasing it out to tenants also does not constitute “development.”
4. Increasing the corporation foreign control threshold from 3% to 10%
Pursuant to the Amendment, the foreign control threshold ownership, direct or indirect, was increased from 3% to 10% such that entities formed under the laws of Canada or a Canadian province may now be controlled by foreign entities with a greater share of interest in those entities, without being deemed a non-Canadian under the Act.
Under the Regulations, “control” was defined to include direct or indirect ownership representing 3% or more of equity value or voting rights. The government’s press release indicates that this aligns with the definition of “specified Canadian Corporation” in the Underused Housing Tax Act (Canada).
5. Expansion of Stock Exchange Exemption
The exception to the definition of “non-Canadian” applicable to corporations listed on Canadian stock exchanges now extends to all publicly traded entities formed under the laws of Canada or a province (i.e., publicly traded REITs).
CMHC’s clarification on Mortgage Lending over Residential Property
CMCH has provided guidance with respect to the government’s interpretation as to how the Act applies on lending over residential property. They said that “Making a loan to a non-Canadian who owns residential property does not in itself constitute an offence under the Act. However, a loan, whether secured or unsecured and whether made by a Canadian or a non-Canadian, made to a non-Canadian which assists the non-Canadian to purchase, directly or indirectly, any residential property while the Act is in force would be an offence under the Act if the lender knows that the purchase is contrary to the Act.”
If you wish to obtain further particulars regarding the Act and its Regulations and their proposed implications, we recommend seeking legal advice.
You can reach out to Wilson Rasmussen LLP’s real estate department if you would like assistance with any residential and commercial real estate matter.
By Karen Aujla and Douglas Zorrilla
A Cautionary Note
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.