Prohibition on the Purchase of Residential Property by Non-Canadians Act

On January 1, 2023, a new federal law came into force. Prohibition on the Purchase of Residential Property by Non-Canadians Act prohibits non-Canadians from purchasing a dwelling unit. Dwelling unit is defined as a residential unit that has a private kitchen, bath and living area. This includes cottages!

This prohibition against “non-Canadian’s” would generally exclude anyone who is not a Canadian citizen (or spouse/common-law partner of a Canadian citizen), and not an Indigenous* person or spouse/common-law partner of an Indigenous person). It would also preclude any corporation from purchasing, unless that corporation was controlled by a Canadian citizen or Indigenous person.

The Act is far reaching and includes holding directly or indirectly. Conviction could result in the property being ordered sold and the non-Canadian cannot profit from that sale. It substantially alters the prior law under the Citizenship Act that allowed both citizens and non-citizens to own property.

Regulations have just been proclaimed and are in effect for two years until December 31, 2025 (but the Act has no expiry date, and if the regulations are not renewed the Act will apply to ALL property).

The regulations create exceptions, which include:

  1. Exempting property not within a census agglomeration (core population of at least 10,000 includes Kenora, and North including Black Sturgeon but not very far south of Kenora) or census metropolitan. (Census metropolitan is areas over 100,000 and includes Thunder Bay, Winnipeg, includes north and east side around Lake Winnipeg to Elk Island Park and includes Victoria Beach and South.)
  2. An acquisition resulting from a death, divorce, separation, or gift – so a U.S owner can gift but cannot sell to a non -Canadian family.
  3. A transfer from a trust that was created prior to December 31, 2022.
  4. A transfer to realize on security by a creditor.
  5. Rental of a dwelling unit for self-occupation.
  6. The Act does not apply to First Nation lands.

There are substantial fines (up to $10,000) for anyone who aids or abets a non-Canadian to purchase directly or indirectly a residential property. This could apply to lawyers, realtors and vendors of property.

This is sad and bad news for our U.S. neighbours. However, it may be an opportunity for Canadian cottage owners, who are in affected areas, who want to gift to their close family (since any gift

will be deemed to have occurred at Fair Market Value “FMV”) to be able to do so with a slightly reduced FMV and less taxes.

U.S. owners cannot transfer on death to other non-Canadians other than as a gift. This will likely result in more properties being put on the market, because the same amount of tax will need to be paid whether it’s being gifted or sold to a third party. Further, section 116 of the Income Tax Act requires non-residents to withhold 25 per cent of the purchase price (or 25 per cent of FMV on a sale or gift at less than FMV) and remit it to CRA regardless of the gain, if a Clearance Certificate cannot be obtained prior to the sale. As a result, U.S. owners may not be able to gift to their children and they will have to sell, flooding the market.

These new restrictions will come as a surprise to many cottage owners in areas where exceptions do not apply. If you have questions about an upcoming sale and how to protect yourself against these serious potential fines, or if you see this as an opportunity to reduce tax payable while preparing the cottage succession plan now, then you should be consulting with a lawyer knowledgeable in these areas to help assist you with your specific needs.

* Please note the regulations specifically refer to someone who qualifies as an “Indian” as defined in the Indian Act, but for the purpose of this article, the writers have chosen to refer to them as Indigenous people.

The purpose of this article is for general education and interest of property owners and is current only as of the date produced and does not reflect subsequent changes in the law. For more information or questions relating to your particular circumstances please contact Mona Brown or Stéphane Warnock at PKF Lawyers.