written on behalf of Feigenbaum Law
In recent years, the Canadian real estate market has seen substantial changes resulting in significant impacts on the housing market. During the COVID-19 pandemic, many parts of the country saw an uptick in residential real estate prices, fueled in part by low-interest rates. The Bank of Canada has also imposed interest rate increases. In the fall of 2022, it was reported that the housing market had slowly started to cool down in many provinces.
On January 1, 2023, the Canadian government announced the enforcement of a two-year ban placed on non-Canadians seeking to purchase residential real estate in Canada, with some exceptions. At Feigenbaum Consulting, we represent Canadians and Americans who have personal or business interests and property in both countries. This article will highlight the impact the new real estate laws will have on American (and other non-Canadian) readers.
Government Passes the Prohibition on the Purchase of Residential Property by Non-Canadians Act
The Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) was initially announced in 2022, with it coming into force on January 1, 2023. The Act and Regulations prevent non-Canadians from purchasing residential property in the country, directly or indirectly. The Act defines non-Canadian as:
“a) an individual who is not a Canadian citizen, not a person registered as an Indian under the Indian Act, and not a person identified as a permanent resident;
b) a corporation that is incorporated otherwise than under the laws of Canada or a province;
c) a corporation incorporated under the laws of Canada or a province whose shares are not listed on a stock exchange in Canada for which a designation under section 262 of the Income Tax Act is in effect and that is controlled by a person referred to in paragraph (a) or (b);
d) an entity formed otherwise than under the laws of Canada or a province; and
e) an entity formed under the laws of Canada or a province and controlled by an entity referred to in paragraph (d) of this definition or controlled by a person referred to in paragraph (a), (b) or (c) of this definition.”
The Prohibition on the Purchase of Residential Property by Non-Canadians Act states that “residential property” is a detached house or similar building, with not more than three units, that has a use as a place of residence for individuals. Other applicable properties include a semi-detached house, rowhouse unit, residential condominium unit, or similar premises.
Exemptions to the Prohibition and Penalties for Non-Compliance
The Act states that the penalty for a non-Canadian who does not comply with the prohibition, or anyone who knowingly does, or attempts to, counsel, induce, aid or abet a non-Canadian to act in contradiction to the Act, will be liable to a summary conviction of a monetary fine up to $10,000.
Certain individuals may be exempt from the ban, such as non-Canadian individuals married to Canadians. The prohibition also does not apply to non-Canadians who have already entered into an agreement of purchase and sale before January 1, 2023.
Additional Considerations for Non-Canadians Seeking to Purchase Canadian Residential Real Estate
While the ban is only a temporary measure as part of a larger effort by the Canadian government to address the rising housing costs across the country, it has yet to be seen whether this effort will produce the anticipated results.
The Act is anticipated to have less of an impact on rural and recreation properties, and the Regulations have introduced additional exceptions to the Act’s strict ban. However, non-residents who seek to purchase residential property in Ontario should remain aware of the further provincial regulations on these purchases. An example of these regulations includes the Non-Resident Speculation Tax implemented under the Land Transfer Tax Act, which adds a 25% tax to the purchase of a residential home by a non-Canadian.
Feigenbaum Consulting in Vaughan Provides Trusted Advice to Canadians and Americans Managing Business and Personal Matters on Both Sides of the Border
Feigenbaum Consulting is led by Mark Feigenbaum, who has extensive experience guiding clients through a wide range of cross-border tax issues, including personal tax planning and compliance and corporate tax planning and compliance. Our team helps businesses seeking to expand from Canada into the United States, and vice-versa, to understand potential tax consequences and develop tailored strategies to ensure compliance with regulatory bodies. With the recent implementation of the prohibition on residential real estate purchases by non-Canadians, those seeking to purchase real estate in Canada may have questions regarding their eligibility to proceed with a transaction or obtain an exemption. To discuss your questions with a member of our team, contact us online or call us at 905-695-1269 (or toll-free at 877-275-4792), to schedule a consultation.