Posted Jan 13, 2023 at 8:00 am EST
Updated January 13, 2023 at 09:21 am EST
The Act to prohibit the purchase of residential property by non-Canadians was passed by Parliament in June 2022 and came into force on January 1 of this year.
Broadly speaking, the new regulations will prohibit the purchase of residential property by any foreign investor who is not a Canadian citizen or permanent resident. The regulations will last for two years and then be automatically revoked.
The Act specifically prohibits foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada.
Residential property includes detached houses or similar buildings, semi-detached houses, apartment blocks, cooperatives and other similar premises.
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The government introduced the law in the 2022 budget as part of Canada’s strategy to reduce housing costs, which has escalated in recent years.
Data from the Canadian Real Estate Association (CREA) shows the median home price jumped in February 2022 to $816,720. It has since dropped to $632,802 as of November 2022. Still, this is considered a high price that makes home ownership out of the question for many, as the median Canadian income was $58,800 in 2021.
The government has cited foreign investors buying homes in Canada without actually living in them as a driving force behind rising home prices.
What are the exceptions?
The new law is not a complete ban on the purchase of property by foreign investors. They are still allowed to buy recreational properties such as villas and holiday homes. Properties that contain more than three separate units are also exempt.
Also, the law does not include homes that are outside of census metropolitan areas (cities with populations over 100,000).
There are also exceptions for non-Canadians who purchase a home with a Canadian spouse or civil partner who later finds themselves in a transitional situation, such as a divorce, or any non-Canadians who inherit a home after death.
Can temporary residents buy a home in Canada?
The law does not apply to Canadian citizens or permanent residents. Temporary residents, those with valid study or work permits, are also still eligible to purchase a home in Canada. However, there are a few conditions for temporary residents, as the government requires proof of intent to become a permanent resident and settle.
For example, a person who is enrolled in a program of authorized study at a designated Canadian educational institution must meet at least one of the following criteria:
- have filed all required income tax returns under the Income Tax Act for each of the five tax years preceding the year in which the purchase was made,
- were physically present in Canada for a minimum of 244 days in each of the five calendar years preceding the year in which the purchase was made,
- the purchase price of the residential property does not exceed $500,000, and
- have not purchased more than one residential property
This means that anyone in Canada with a learner’s permit who wants to buy a home must be able to prove that they have been in the country for 244 days each year in the last five years before making the purchase. They also require proof of filing tax returns in Canada for the same period.
It’s also important to note that the maximum purchase price of $500,000 for a home probably isn’t enough to buy a home in Ontario or British Columbia, where the median house price is still over $800,000 and the housing crisis is most acute.
Those in Canada with a valid work permit also have conditions they must meet, such as:
- they have worked in Canada for a minimum period of three years within the four years preceding the year in which the purchase was made, if the work is full-time work as defined in subsection 73(1) of the Immigration and Protection Regulations of Refugees, (IRPA).
- have filed all required income tax returns under the Income Tax Act for a minimum of three of the four tax years preceding the year in which the purchase is made, and
- have not purchased more than one residential property.
In this case, the time spent in Canada is less than for those studying, but work permit holders must still show at least three years of full-time work and tax returns for the previous four years.
The law also says that it is the non-Canadian’s responsibility to prove that they meet the Canadian broker’s requirements. Temporary residents are responsible for all costs associated with obtaining proof of eligibility, such as retrieving work permit documentation and assessment notices. They may also need documents to demonstrate physical presence in Canada, such as a lease, utility bills, or records of entering and leaving Canada.
What are the penalties?
A foreign investor who finds a way to purchase a prohibited residential property in Canada, or anyone who knowingly assists him or her, will commit an offense and be liable to a fine of up to $10,000. In addition, the superior court of the province in which the property is located may ordered the property to be sold.
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