Amendments to the Prohibition on the Purchase of Real Property by Non Canadians Act
The Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) created unintended problems for developers and REITS which we summarized in our December 23, 2022 article. Shortly after the Act came into force, BILD, the CHBA and a number of lawyers and developers worked to have these unintended problems corrected. As of March 27, 2023, the federal government has amended the regulations to the Act and corrected many of the Act’s deficiencies. We briefly discuss these changes below:
Development Intention Exemption
Several provisions of the original Act had the ability to prevent developers from acquiring property for development purposes. The federal government has responded to this concern by creating a new exemption where a property is acquired for the purposes of development. This should alleviate a majority of concern for developers. We note that the term “development” is not defined in the amended regulations. As such, plans to tear down and rebuild housing without creating additional dwelling units or to make only minor renovations to add additional dwelling units to a property may not fall within this exemption.
No longer applies to Vacant, Commercial and Industrial Land
A significant problem with the initial regulations to the Act were that they applied to any land without a habitable dwelling if the land was zoned for residential use or mixed use. This has been completely deleted in the recent amendments, so there is no longer any concern about potential infringement when purchasing vacant, commercial or industrial lands.
Public Entity Exemption Added
The Act originally created an exemption for public corporations, but not for public non-corporation entities. As a result, REITS and other publicly traded entities were subject to the Act. The amended regulations now extend protections to any entity that is publicly traded on a Canadian stock exchange.
Foreign Ownership Threshold increased to 10%
The Act originally considered an entity or corporation as being a non Canadian where 3% of its direct or indirect equity or voting control was owned by non Canadians. This threshold has been increased to 10% in the regulations, thereby permitting some minority non Canadian investment even where the Act would otherwise be contravened. This should provide some additional flexibility even in those rare scenarios.
Improved Work Permit Exception
The original work permit exception required that a purchaser to have worked in Canada and filed tax returns for three out of the four previous years. Now this exception only requires that at least 183 days of validity remains on the work permit or work authorization, and the purchaser has not purchased more than one residential property.
The amendments to the regulations to the Act go a long way towards resolving the issues with the Act. With these changes, our earlier concerns that the Act would prevent supply from being created have been largely satisfied. We applaud the hard work of BILD and the CHBA in lobbying for these changes, and congratulate the federal government on making well thought out changes to the Act so quickly.
The information contained in this article is not intended to be treated as legal advice. Please contact one of our lawyers listed below for specific legal advice on these matters: