The Foreign Buyer Ban Canada

In response to growing concerns regarding the affordability of residential property, various levels of government in Canada have introduced measures aimed at cooling the housing market. These have included the introduction of foreign buyers’ taxes and vacant property taxes. However, despite these efforts, property prices have continued to rise.

As a result, the federal government took its most significant step to cool the market by introducing the Prohibition on the Purchase of Residential Property by Non-Canadians Act. This legislation was announced as part of the Liberal Party’s housing platform during the 2021 federal election campaign and came into effect on January 1, 2023. In essence, it restricts the sale of residential property to non-Canadians in certain metropolitan areas.

Initially, the ban was set to expire at the end of 2024. However, the government announced an extension at the beginning of 2024. So, it will now remain in effect until January 1, 2027.

Prohibition On Purchasing Residential Property

The foreign buyer ban prevents non-Canadians from buying residential properties directly or indirectly in Census Metropolitan Areas (CMAs) and Census Agglomerations (CAs). This includes any transactions where the buyer is a non-Canadian individual or entity looking to acquire ownership of residential real estate. Residential properties encompass homes, condominiums, and other types of housing intended for personal occupancy.

It also restricts foreign buyers from purchasing vacant land zoned for residential use in these areas. This means that non-Canadian individuals and entities cannot buy empty lots intended for the construction of homes, condominiums, or other residential structures.

In addition to direct purchases, the ban also prohibits non-Canadians from indirectly acquiring residential properties through corporations, trusts, or other legal entities. This measure aims to prevent circumvention of the ban by using complex ownership structures to mask the true identity of the buyer. By closing this loophole, the legislation ensures that the prohibition applies comprehensively to all forms of property acquisition by non-Canadians.

What Are CMA’s and CA’s?

The ban focuses on CMAs and CAs because these are the most urban and densely populated areas where housing is the most expensive and hardest to afford. A Census Metropolitan Area (CMA) is a region defined by Statistics Canada that consists of one or more neighboring municipalities situated around a core urban area with a population of at least 100,000, of which at least 50,000 live in the core. Examples in Alberta include Calgary and Edmonton.

A Census Agglomeration (CA), on the other hand, is similar to a CMA but smaller in scale. It consists of one or more neighboring municipalities around a core population center with a population of at least 10,000 but less than 100,000. CAs capture smaller urban areas that are also economically and socially integrated with their surrounding areas. For example, Grand Prairie and Okotoks in Alberta would be considered a CA.

By restricting foreign purchases in these areas, the government aims to alleviate pressure on housing markets where demand is highest, to help ensure that residential properties remain accessible to local residents.

Foreign Buyer Ban Exceptions

There are some exceptions to the foreign buyers rule. These exceptions allow specific non-Canadians to purchase residential property under defined conditions, making sure the ban doesn’t unfairly affect people with valid reasons for buying property in Canada. This includes the following groups.

International Students

International students are one of the primary groups granted an exception under the foreign buyer ban. To qualify, students must meet specific criteria such as being enrolled in a recognized educational institution and having spent a certain number of years studying in Canada. Typically, this includes having studied for a minimum of five years, which demonstrates their long-term commitment to the country. This exception recognizes the significant contributions of international students to Canadian society and their potential future as permanent residents.

Work Permit Holders

Another significant exception is made for people who have temporary resident status and who hold valid work permits. These individuals must have filed Canadian income tax returns for at least three out of the four years preceding the property purchase. They must have lived in Canada for a substantial period. This ensures they have established a significant connection to Canada and contribute to the economy.

Refugees

Individuals who have been granted refugee status under Canadian law are also exempt from the foreign buyer ban. This exception acknowledges the unique challenges faced by refugees and supports their need for stability and security.

Diplomats and Consular Staff

Diplomats, consular staff, and members of international organizations who hold diplomatic immunity are exempt from the foreign buyer ban. This ensures Canada adheres to international diplomatic protocols and maintains strong relationships with other countries. These individuals often need to purchase property as part of their diplomatic missions, and this exception facilitates their ability to fulfill their roles effectively.

Violations

Enforcing the foreign buyer ban poses significant challenges. Identifying and tracking foreign ownership can be complex, particularly when purchases are made through corporate entities or trusts. There are also concerns about the potential for loopholes and evasion, which could undermine the ban’s effectiveness.

Therefore, severe financial, legal, and reputational consequences have been put in place for anyone who violates the buy on foreign buyers. The following are the primary consequences for violating the foreign buyer ban in Canada.

Financial Penalties

Individuals or entities found to be in violation of the foreign buyer ban face substantial financial penalties. The Act stipulates fines of up to $10,000 for each offence. This monetary penalty applies to both the foreign buyer and any non-Canadian or Canadian citizen who knowingly assists in the transaction, including real estate agents, real estate lawyers, and property developers. The imposition of these fines serves as a strong deterrent against attempting to circumvent the law.

Forced Sale of Property

In addition to financial penalties, the federal government has the authority to seek a court order to force the sale of any residential property purchased in contravention of the ban. This means that properties acquired unlawfully by non-Canadians must be sold, and the proceeds from the sale may be directed towards the Canadian government. This measure ensures that illegally obtained properties are returned to the market, aligning with the ban’s objective of preserving housing affordability for Canadian citizens and permanent residents.

Legal and Reputational Consequences

Beyond financial and property-related penalties, violations of the foreign buyer ban can also lead to significant legal and reputational consequences. Individuals and entities found guilty of non-compliance may face lawsuits and legal action, which can be both time-consuming and costly. Being associated with illegal activities can damage the reputations of businesses and professionals involved, potentially affecting their future opportunities and credibility within the real estate market.

Duration

Are non-residents banned from buying homes in Canada until 2025? Yes, in fact, even longer. They are currently banned from purchasing residential property until 2027.

The initial duration for the ban on direct or indirect ownership of residential property was set for a two-year period, beginning on January 1, 2023, and concluding on December 31, 2024. However, on February 4, 2024, the Minister of Finance announced an extension to the foreign buyer ban. It will now remain in effect until January 1, 2027.

During this period, the government will continue to monitor market conditions, collect data, and assess the impact of the ban on both housing prices and availability. At the end of the period, the government can decide whether to extend, modify, or terminate it based on its findings. If the ban is deemed successful in achieving its goals, the government may choose to extend it for an additional period or introduce permanent measures to regulate foreign ownership of residential properties.

Can Foreign Buyers Still Buy Commercial Property In Canada?

Yes, foreign buyers can still purchase commercial property in Canada. The Prohibition on the Purchase of Residential Property by Non-Canadians Act specifically targets residential property and does not extend to commercial real estate. This means that non-Canadian investors can still legally acquire commercial properties such as office buildings, retail spaces, industrial facilities, and multi-family residential properties that are classified as commercial real estate.

Can Non-Canadians Buy Mixed Use Property?

Yes, foreigners can purchase mixed-use properties in Canada under the current ban. The Prohibition on the Purchase of Residential Property by Non-Canadians Act specifically targets residential property, meaning properties intended for residential use. Mixed-use properties, which typically combine residential dwelling units with commercial spaces such as retail stores or offices, may still be accessible to foreign buyers depending on the property’s primary use and classification.

If the primary use is commercial rather than residential, it may fall outside the scope of the ban. Likewise, the proportion of the property that is used for residential purposes versus commercial purposes could also influence eligibility. Properties with significant commercial space might still be purchasable by a non-Canadian.

Due to the potential complexities and nuances in property classifications, foreign buyers should seek legal advice to ensure compliance with the regulations. Our commercial real estate lawyers can help clarify whether a specific mixed-use property is subject to the ban.

Navigating the Complexities Of the Foreign Buyer Ban

The foreign buyer ban in Canada represents a bold attempt to address one of the most pressing issues facing the country today: housing supply and affordability. While the ban aims to curb speculative foreign investment and make homes more accessible to Canadians, its overall effectiveness remains a subject of debate. The true impact of the ban will depend on its enforcement, the response of the real estate market, and the implementation of complementary measures.

If you are considering buying residential property as an exception under the ban, please get in touch. Our lawyers can help you navigate the complexities of the Foreign Buyer Ban by providing comprehensive legal advice and ensuring compliance with all regulations.

We conduct thorough due diligence to verify eligibility for exemptions and structure transactions accordingly, minimizing legal risks. In cases of non-compliance, our lawyers offer robust representation and negotiate to mitigate penalties and resolve disputes effectively. Give us a call, to get started today.