In June, 2022, the federal government, perhaps wishing to be seen to be taking action on the lack of affordable housing in Canada, passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act. This legislation said that, between January 1, 2023 and December 31, 2024, non-Canadians are prohibited from buying residential property in Canada.
Regulations under the Act – without which no one knew how the Act would be applied - were not published until December 21, 2023. The regulations unexpectedly declared that the Act prohibited non-Canadians from directly or indirectly acquiring any legal or equitable interest in land zoned residential use or mixed use, including vacant land, located in a "census metropolitan area" or a "census agglomeration".
The legislation and regulations produced some unexpected, unwelcome and potentially unhelpful results given the objective of increasing the supply of residential property for Canadians.
Land outside a "census metropolitan area" (CMA) or a "census agglomeration" (CA) is not subject to the Act.
One would think that a CMA would be a city where many people live, and a CA would be a town or village where numbers of people live.
Not so. As an example, the Kamloops CMA includes all the land including Sun Peaks on the east, to just south of Louis Creek, northwest to the Bonaparte Plateau, south past Savona, south and west to Cache Creek, south well past Logan Lake and Lac Le Jeune, north to Kamloops City proper, east along the South Thompson River to Chase and north, back to Sun Peaks.
Many of the other CMAs are just as large, with no evident connection to the density of housing or the demand for accommodation.
As well, finding mapping for the CMAs and CAs online is challenging; we have been told that the mapping for CAs is not up to date; and the boundaries are not guaranteed to be in the exact location shown on the online mapping. Some land owners will have difficulty learning with certainty if their land is inside or outside of a CMA or CA.
The December 2022 Regulations included as "residential property", vacant land that was zoned residential plus some other use. Most farm land is zoned for agriculture and residential use – "mixed" zoning according to the Regulations, so farm land so zoned within CMAs or CAs was subject to the prohibitions on sale to non-Canadians.
As an example, the Agriculture-Forestry AF-1 zone in the Thompson Nicola Regional District authorizes a variety of uses including agriculture and residential use, so is mixed zoning. The mixed zoning and the prohibition on the sale of vacant land in CMAs and CAs with mixed zoning to non-Canadians, meant that no land within the AF-1 zone located in the Kamloops CMA could be sold to a non-Canadian.
Most of the land within the Kamloops CMA is ranch land with AF-1 or similar mixed zoning. So as of January 1, 2023, a substantial part of the ranch land in the Kamloops region could not be sold to a non-Canadian.
This startling outcome was corrected by an amendment to the Regulations on March 27, 2023 which removed the prohibition on sale of mixed-zone vacant land within CMAs and CAs to non-Canadians.
The "Residential Property" definition includes a detached house and yard or a condo. From the perspective of a rancher who wants to sell his or her ranch located in a Census Metropolitan Area or a Census Agglomeration, the March 27th change to the Regulations means that the ranch’s vacant land can now be sold to a non-Canadian--but not the associated land with a residence on it.
A purchase includes the "direct or indirect" acquisition of any "legal or equitable" interest in residential property within a Census Metropolitan Area or Census Agglomeration.
The Act cannot be circumvented by having a Canadian buy a property in trust for a non-Canadian, as that is an "indirect" acquisition of an "equitable" interest in land.
An "interest in land" includes the interest of a lender who has a mortgage on property or that of a tenant under a lease, although as outlined below, a residential lease to a non-Canadian may be permitted.
Canadian citizens and permanent residents (landed immigrants) of Canada are eligible buyers. So are certain temporary residents, certain work permit holders, diplomatic passport holders, and certain refugees.
Certain purchases are allowed, even if the buyer would normally be prohibited:
(a) acquisition by an individual of an interest or a real right resulting from death, divorce, separation, or a gift;
(b) rental of a dwelling unit to a tenant for the purpose of its occupation by the tenant;
(c) transfer under the terms of a trust that was created before the Act came into force;
(d) acquisition by a non-Canadian of residential property for the purposes of development.
Companies incorporated in Canada with 10% or more equity shares or 10% or more voting shares held by non-Canadians are prohibited buyers, although publicly traded corporations listed on a designated stock exchange in Canada are still allowed to buy residential property in a CMA or CA.
Both the non-Canadian buyer and anyone who helps with that transaction in any way, including merely by advising, is subject to a fine of up to $10,000. If a number of people in a business that works on the transaction advise or otherwise help with the transaction, each can be separately liable for the fine.
A court can also order the improperly acquired property to be sold, and the court order can be "subject to any terms that [the court] considers appropriate". The best that the non-Canadian owner can do is hope to be reimbursed for the purchase price; any increased value realised on the sale goes to the Receiver General for Canada.
The Act has come in for negative public comment as having marked unanticipated consequences which affect commercial real estate deals, real estate development, and the de facto exclusion of publicly traded Canadian REITs from the residential marketplace, all affecting the rights of investors in these enterprises and negatively affecting residential development in Canada.
There are also real questions about whether the Act will result in reduced competition for residential property, as non-Canadian buyers are a tiny proportion of residential buyers.
Unusually for anything Canadian, the Act has come to the attention of Americans, with questions asked about why it’s okay for Canadians to buy American real estate when Americans are prohibited from buying Canadian real estate.
Although the announcement of the legislation said that resort communities would not be affected by the foreign buyers’ ban, Sun Peaks, Silver Star, and Apex resorts are all subject to the Act. Other BC resorts lying outside CMAs or CAs are not subject to the Act. This legislation in combination with the Underused Housing Tax Act (Canada) is potentially catastrophic for these communities, all of which should be excluded. Despite protests from these communities, as at the date of writing no steps have been taken to exclude these communities as was promised by the federal government.
The March 27, 2023 amendment to remove vacant land from the Act is a start towards dealing with some of the unintended consequences of this poorly thought-out legislative scheme.
The next step must be to revise the areas subject to the Act. The CMAs and CAs are poor choices to identify property subject to excess residential demand. Municipal boundaries excluding resort communities would have been a more sensible choice.