Regulations and other considerations: further impacts of the Prohibition of Residential Property by Non-Canadians Act
Wednesday’s Thought Leadership piece from our Immigration Group detailed the impacts of recent Federal legislation limiting housing purchases by non-Canadians on Foreign Nationals, international students and temporary and permanent residents.
Today, lawyers from our Real Property Group provide additional insight on the impacts of the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”), with a specific focus on the Regulations and other considerations for non-resident, non-Canadians looking to purchase property.
By Eyoab Begashaw, Cullen Mullally, Brian Tabor, K.C. & James Cruickshank
The Regulations associated with the Act, which were released in early December 2022, provide additional detail on what purchases will be prohibited under the Act and what exemptions are available. As noted in yesterday’s article, there are several exceptions to the Act, and penalties for non-compliance. It should also be noted that residential property is any real property that is situated in Canada within an urban region (see below) that is:
- a detached house or similar building containing three or less dwelling units;
- a part of a building that is a semi-detached house, rowhouse unit, residential condominium unit or other similar premises that is a separate parcel or other division of real property;
- any land that is zoned for residential use or mixed use, even if the land does contain any habitable dwelling.
Impact of the Regulations
The Regulations exclude from the definition of residential property any property that is not within an urban region, which is defined in the Regulations as either a census agglomeration or a census metropolitan area. The terms “census agglomeration” and “census metropolitan area” are defined by Statistics Canada, and include all major Canadian cities, and also many other urban centres across the country. The data used to make this determination is based on Statistic Canada’s Census of Population Program. Based on 2021 data, the definition would not only capture large urban centres, such as Halifax, but also smaller regions where individuals may own recreational homes (such as Kentville, Nova Scotia or Summerside, Prince Edward Island). A full list of current census agglomeration areas and census metropolitan areas can be found online.
As noted in our previous article, the Regulations confirm that the prohibition also applies to entities not formed under the laws of Canada or a Canadian province, as well as entities that are formed under the laws of Canada or a Canadian province but are controlled by non-Canadian individuals or entities formed under the laws of non-Canadian jurisdictions.
The Regulations provide for a uniquely low threshold as to what constitutes control, that is:
- direct or indirect ownership of shares, or ownership interests of the corporation or entity representing three percent or more of the value of the equity in it, or carrying three percent or more of its voting rights; or
- control in fact of the corporation or entity, whether directly or indirectly, through ownership, agreement or otherwise.
With a uniquely low threshold for what constitutes “control”, potential buyers and builders must ensure that they are fully aware of their status and how they are affected by the relevant provisions of the Act and associated Regulations.
Additional impacts on residential property purchases
While this Act is the most recent legislation impacting the purchase of residential property by non-Canadians (it came into force on January 1, 2023), it is not the only one. The following Federal and provincial legislations from 2022 also had impacts.
- Underused Housing Tax (Federal)
Bill C-8, the Underused Housing Tax Act (“UHT Act”) received Royal Assent on June 9, 2022, and came into effect retroactively on January 1, 2022, creating a new tax on underused (i.e. vacant) residential properties owned by non-resident, non-Canadians. The UHT Act dictates that every non-excluded owner of residential property must file a return on December 31st of each year (UHT Act, s. 7(1)), and pay a tax equal to one percent of their ownership share of the value of the property. Owners can elect a fair market value or the prescribed value, or the property’s most recent sale price (UHT Act, s. 6(3)).
Excluded owners, as defined in the UHT Act, include government, a citizen or permanent resident of Canada, a publicly listed corporation incorporated federally or provincially, a trustee, a registered charity, a co-op, hospital, municipality, college or university, an Indigenous governing body or a prescribed person (UHT Act, s. 2).
- Provincial Deed Transfer Tax (Nova Scotia)
Effective April 1, 2022, the province of Nova Scotia introduced the Non-resident Deed Transfer and Property Taxes Act with respect to the Provincial Non-Resident Deed Transfer Tax (“PDTT”). The PDTT levies a five percent tax on the greater of the purchase price or the assessed value of the property, and applies to all residential properties, or a portion of the property that is deemed residential, including vacant land classified as residential.
For additional information with respect to the PDTT, please see our previous Thought Leadership piece, Provincial Non-Resident Deed Transfer Tax Guidelines. Note, the
non-resident property tax which had originally been contemplated in Nova Scotia, was subsequently repealed.
- Island Regulatory and Appeals Commission (Prince Edward Island)
Non-Canadians looking to buy in Prince Edward Island must comply with the Lands Protection Act (PEI) (“LPA”). This legislation is administered and enforced by the Island Regulatory and Appeals Commission (“IRAC”), and while not new, it does require non-residents of Prince Edward Island and corporations to make application to IRAC if they are looking to acquire lands that results in total applicant landholdings in excess of five acres or shore frontage in excess of 165 feet. Each application is considered upon its merits based on a number of factors.
The landholding parameters will seldom present as a hurdle for non-Canadians looking to purchase a residential home. However, all properties are unique and compliance with the LPA must be ensured to avoid fines or other actions.
Conclusions
Given the low control threshold, the broad definition of “residential property”, the unique
two-year time period of the legislation, and the potential penalties for non-compliance, it is important for prospective non-resident, non-Canadian residential property purchasers to understand the requirements under the Act. Non-resident, non-Canadians who are considering a purchase of real property within Canada, either directly or through a corporation or other entity, should seek the advice of counsel to ensure compliance.
Any questions surrounding the Act, the Regulations, or their implications can be directed to the authors, or a member of our Real Property Group.
This update is intended for general information only, and does not constitute legal advice.
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