Foreign Investors

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

Background

In Budget 2022, the Government announced its intent to prohibit non-Canadians from purchasing residential property in Canada for a period of two years. This measure was previously included in the respective mandate letters of the Minister of Housing and Diversity and Inclusion and the Minister of Finance published in December 2021.

Legislation to implement the prohibition, the Prohibition on the Purchase of Residential Property by Non-Canadians Act, received royal assent on June 23, 2022, and will come into force on January 1, 2023. The Act sets out the legislative framework for the prohibition by

  • prohibiting people who are neither Canadian citizens nor permanent residents from purchasing residential property in Canada for a period of two years, including preventing non-Canadians from using corporate structures to avoid the prohibition;
  • establishing penalties for non-Canadians purchasing residential property (and those knowingly assisting them), and allowing for the responsible minister, following a conviction, to apply to a court for the judicial sale of a property that was purchased in breach of the prohibition; and
  • providing authorities to establish in the Regulations specific exceptions, definitions and clarifications, including exceptions for certain groups of people and types of property announced by the Government in Budget 2022.

Objective

The objective of the Regulations is to establish specific exceptions, definitions and clarifications necessary to fully implement the Act, as passed by Parliament. These final details include exceptions from the prohibition announced by the Government through Budget 2022 that are relieving in nature, as well as other definitions and clarifications necessary to provide stakeholders sufficient clarity with respect to the application of the prohibition in different circumstances. In supporting the effective and timely implementation of the Act, the Regulations form part of the Government’s broader policy response to prevailing housing affordability concerns experienced by Canadians.

CMHC EXPLANATION

https://www.cmhc-schl.gc.ca/en/media-newsroom/notices/2022/ensuring-housing-owned-canadians

Ensuring housing market remains available to Canadians

The Prohibition on the Purchase of Residential Property by Non-Canadians Act prevents non-Canadians from buying residential property in Canada for 2 years starting on January 1, 2023.

The Government of Canada has passed a new law to help make homes more affordable for people living in Canada. The Prohibition on the Purchase of Residential Property by Non-Canadians Act prevents non-Canadians and corporations controlled by non-Canadians from purchasing residential property in Canada for 2 years.

In developing the accompanying regulations, the Government reached out to Canadians for their feedback. A detailed consultation document containing specific policy proposals intended for the regulations was available for comment for 4 weeks in August and September 2022. The consultation process received approximately 200 written submissions from individuals and stakeholders.

The Regulations will also come into force on January 1, 2023. The Act and its regulations will be repealed after 2 years.

For more details, read the Regulations in the Canada Gazette.

Key Highlights

  • The Prohibition on the Purchase of Residential Property by Non-Canadians Actprevents non-Canadians from buying residential property in Canada for 2 years starting on January 1, 2023.
  • The Act defines residential property as buildings with 3 homes or less, as well as parts of buildings like a semi-detached house or a condominium unit. The law does not prohibit the purchase of larger buildings with multiple units.
  • The Act has a $10,000 fine for any non-Canadian or anyone who knowingly assists a non-Canadian and is convicted of violating the Act. If a court finds that a non-Canadian has done this, they may order the sale of the house.
  • Please note: This does not apply to non-Canadians who are looking to rent.

DEFINITION CONTAINED IN THE REGUALATION

Definition of “Non-Canadian”

The Prohibition on the Purchase of Residential Property by Non-Canadians Act applies to individuals who aren’t:

  • Canadian citizens
  • permanent residents of Canada
  • persons registered under the Indian Act.

The Act also applies to corporations based in Canada that are:

  • privately held
  • not listed on a stock exchange in Canada
  • controlled by someone who is a non-Canadian

Definition of “Residential Property”

The Prohibition on the Purchase of Residential Property by Non-Canadians Act defines residential property as buildings of up to 3 dwelling units and parts of buildings, like semi-detached houses or condominium units.

The Regulations clarify that the prohibition applies to:

  • residential property located in a census metropolitan area or a census agglomeration as outlined in greater detail below.
  • vacant land that does not contain any habitable dwelling, that is zoned for residential use or mixed-use and that is located within a census metropolitan area or a census agglomeration

Definition of “Purchase”

The Prohibition on the Purchase of Residential Property by Non-Canadians Act applies to direct or indirect purchases of residential property. This includes purchases made through vehicles such as partnerships, trusts or other entities seeking to avoid the prohibition

There are some situations where the prohibition doesn’t apply, including:

  • when somebody acquires an interest in a residential property resulting from a divorce, separation, gift, or death
  • the rental of a dwelling unit to a tenant for the purpose of its occupation by the tenant
  • when the transfer is resulting from the exercise of a security interest or secured right by a secured creditor

Definition of “Control”

For the purposes of the prohibition vis a vis privately held corporations controlled by a non-Canadian or an entity formed under the laws of Canada or a province and controlled by a non-Canadian, the Regulations define “control” as:

  • direct or indirect ownership of shares or ownership interests of the corporation or entity representing 3% or more of the value of the equity in it, or carrying 3% or more of its voting rights, or
  • control in fact of the corporation or entity, whether directly or indirectly, through ownership, agreement or otherwise

EXCEPTIONS

The Act and Regulations provide exceptions for the following persons:

Temporary residents studying in Canada, if they:

  • are enrolled in a program of authorized study at a designated learning institution as defined in the Immigration and Refugee Protection Regulations
  • have filed income tax returns for each of the 5 taxation years preceding the year in which the purchase was made
  • have been physically present in Canada for a minimum of 244 days in each of the 5 calendar years preceding the year in which the purchase was made
  • have not previously purchased a residential property in Canada while the prohibition is in effect
  • purchase a property for a price not exceeding $500,000

Temporary residents working in Canada, if they:

  • hold a valid work permit or are authorized to work in Canada
  • have worked full-time in Canada for at least 3 years within the 4 years preceding the year in which the purchase was made
  • have filed income tax returns for 3 of the 4 taxation years preceding the year in which the purchase was made
  • have not previously purchased a residential property in Canada while the prohibition is in effect

Refugees, if they:

  • have been given refugee protection or are a protected person under the Immigration and Refugee Protection Act, 2001

Refugee claimants and individuals fleeing international crises, if they:

  • have made a claim for refugee protection in accordance with the Immigration and Refugee Protection Act, if that claim has been found eligible and referred to the Refugee Protection Division; or
  • have received temporary resident status in accordance with theImmigration and Refugee Protection Act based on humanitarian public policy considerations to provide a haven to those fleeing conflict

Accredited members of foreign missions in Canada, if they:

  • hold a passport that has a valid diplomatic, consular, official, or special representative acceptance issued by the Chief of Protocol of Canada

Non-Canadian spouses and common-law partners, if they:

  • purchase residential property in Canada with their spouse or common-law partner who is a Canadian citizen, a person registered under the Indian Act, a permanent resident or a non-Canadian for whom the prohibition does not apply.

Section 35 Rights – Indigenous People and Communities

The Regulations clarify that the prohibition doesn’t apply if it conflicts with the rights recognized and affirmed by Section 35 of the Constitution Act, 1982.

Section 35 recognizes and affirms the existing Indigenous and treaty rights of Indigenous peoples of Canada. These may include ownership rights to land, rights to occupy and use lands and resources, land to be set aside for First Nation use only, self-government rights and cultural and social rights.

Exceptions for certain types of property

The Regulations include an exception for any residential property found outside of a Census Metropolitan Area or Census Agglomeration as identified in Statistics Canada’s Standard Geographical Classification 2021.

Both Census Metropolitan Areas and Census Agglomerations are formed by 1 or more adjacent municipalities centered on a population center, or the core.

A Census Metropolitan Area must have a total population of at least 100,000 of which 50,000 or more must live in the core and a Census Agglomeration must have a core population of at least 10,000.

Whether a residential property is located within a Census Metropolitan Area (CMA) or a Census Agglomeration (CA) can be determined by accessing the Standard Geographical Classification (SGC) reference maps. More detailed maps of CMAs and certain CAs are also available by accessing Statistics Canada’s Census Tract reference maps. Statistics Canada has also created an interactive mapping tool that could help determine if a specific residential property is part of a CMA or CA.

Disclaimer BY CMHC

The information contained on this site is for general guidance only and is not to be construed as legal or other professional advice. It should not be used as a substitute for consultation with legal or other competent advisers. Before making any decision or taking any action, you should consult a professional.   CMHC is not responsible for any errors or omissions in connection with the use of this information. All information on this site is provided “as is,” with no guarantee of completeness or accuracy.CMHC won’t be liable to you or anyone else for any decision made or action taken in reliance of the information on this Site. 

Underused Housing Tax information  (from Canada Revenue)

The Underused Housing Tax is an annual 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022. The tax usually applies to non-resident, non-Canadian owners. In some situations, however, it also applies to Canadian owners.

This is a summary of some of the most important information about the Underused Housing Tax. More information and details about the tax will be available over the coming weeks.

Visit the Underused housing tax technical information page for publications, forms and other technical information.

Who must file a return and pay the tax

If you are an excluded owner of a residential property in Canada, you have no obligations or liabilities under the Underused Housing Tax Act.

An excluded owner includes, but is not limited to:

  • an individual who is a Canadian citizen or permanent resident – unless included in the list of affected owners below
  • any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a trustee of a mutual fund trust, real estate investment trust, or specified investment flow-through trust (SIFT) for Canadian income tax purposes
  • a Canadian corporation whose shares are listed on a Canadian stock exchange designated for Canadian income tax purposes
  • a registered charity for Canadian income tax purposes
  • a cooperative housing corporation for Canadian GST/HST purposes
  • an Indigenous governing body or a corporation wholly owned by an Indigenous governing body

If you are not an excluded owner we refer to you as an affected owner and you have obligations under the Underused Housing Tax Act for your residential property in Canada. An affected owner includes, but is not limited to:

  • an individual who is not a Canadian citizen or permanent resident
  • an individual who is a Canadian citizen or permanent resident and who owns a residential property as a trustee of a trust (other than as a personal representative of a deceased individual)
  • any person – including an individual who is a Canadian citizen or permanent resident – that owns a residential property as a partner of a partnership
  • a corporation that is incorporated outside Canada
  • a Canadian corporation whose shares are not listed on a Canadian stock exchange designated for Canadian income tax purposes
  • a Canadian corporation without share capital

If you are an affected owner, you must file an Underused Housing Tax return for each residential property that you own in Canada on December 31. You must also pay the Underused Housing Tax, unless your ownership qualifies for an exemption for the calendar year. Even if your ownership qualifies for an exemption, you must still file an Underused Housing Tax return for the calendar year.

Penalties for failing to file the return on time

There are significant penalties if you fail to file an Underused Housing Tax return when it is due. Affected owners who are individuals are subject to a minimum penalty of $5,000. Affected owners that are corporations are subject to a minimum penalty of $10,000.

Exemptions

Your ownership of a residential property may be exempt from the Underused Housing Tax for a calendar year depending on:

  • the type of owner you are
  • the availability of the residential property
  • the location and use of the residential property
  • the occupant of the residential property

Remember if you are an affected owner of a residential property in Canada on December 31 you still have to file an Underused Housing Tax return for the residential property for the calendar year, even if your ownership qualifies for an exemption.

Exemptions based on the type of owner

Your ownership of a residential property may be exempt for a calendar year if you are:

  • a specified Canadian corporation
  • a partner of a specified Canadian partnership, or a trustee of a specified Canadian trust
  • a new owner in the calendar year
  • a deceased owner, or a co-owner or personal representative of a deceased owner

Exemptions based on the availability of the residential property

Your ownership of a residential property may be exempt for a calendar year if the property is:

  • newly constructed
  • not suitable to be lived in year-round, or seasonally inaccessible
  • uninhabitable for a certain number of days because of
    • a disaster or hazardous conditions
    • renovations

Exemption based on the location and use of the residential property

Your ownership of a residential property may be exempt for a calendar year if the property is:

  • a vacation property located in an eligible area of Canada and used by you or your spouse or common-law partner for at least 28 days in the calendar year

Refer to the Underused housing tax vacation property designation tool to determine if your residential property is located in an eligible area of Canada for the purposes of this exemption.

Exemptions based on the occupant of the residential property

Your ownership of a residential property may be exempt for a calendar year in either of the following situations:

  • it is the primary place of residence for you or your spouse or common-law partner, or for your child who is attending a designated learning institution
  • at least 180 days in the calendar year are included in one or more qualifying occupancy periods for your ownership of the residential property

qualifying occupancy period is at least one month in a calendar year during which one of the following qualifying occupants has continuous occupancy of the residential property:

  • an individual with a written contract who deals at arm’s length with you and your spouse or common-law partner
  • an individual with a written contract who does not deal at arm’s length with you or your spouse or common-law partner, and who pays at least fair rent for the property
  • you, or your spouse or common-law partner, who has a Canadian work permit
  • your spouse or common-law partner, parent, or child who is a Canadian citizen or permanent resident

Special rule for individual owners of multiple residential properties

If between you and your spouse or common-law partner you own multiple residential properties, your ownership may not qualify for the exemptions for either primary place of residence or qualifying occupancy unless you file an election with the CRA to designate only one property for the purposes of the exemption.

Calculate what you owe

If your ownership of a residential property does not qualify for an exemption from the Underused Housing Tax for a calendar year, you must calculate what you owe for the calendar year.

The tax rate of the Underused Housing Tax is 1%. To calculate what you owe, multiply the value of the residential property by the 1% tax rate. Then multiply that result by your ownership percentage of the property.

Determine the value of the property

There are two ways to determine the value of a residential property. The general rule is to use its taxable value. If you want to use its fair market value instead, you must file an election with the Agency.

An affected owner electing to use the fair market value of a residential property to calculate Underused Housing Tax owing must get an appraisal of the property. The appraisal report must be prepared by an accredited, professional real estate appraiser operating at arm’s length from the owner. The intended use of the appraisal report must be to assist in the administration of the Underused Housing Tax Act.

Filing the return

If you are an affected owner of a residential property in Canada on December 31, you must file an Underused Housing Tax return for the calendar year. Even if your ownership of the property qualifies for an exemption and you do not owe any tax, you still must file a return.

More information and details about how to file the return will be available in the coming weeks.

When to file the return or an election

You must file your return for a calendar year by April 30 of the following calendar year.

You must pay any Underused Housing Tax you owe for a calendar year by April 30 of the following calendar year.

Elections to use the fair market value to calculate the tax you owe, or to qualify for the exemptions for primary place of residence or qualifying occupancy, are due by April 30 and are filed on the return.

Remember, there are significant penalties if you fail to file an Underused Housing Tax return when it is due.

Tax identifier numbers

You must have a valid CRA tax identifier number to file your Underused Housing Tax return. The following tax identifier numbers may be used depending on the situation:

  • a social insurance number (SIN)
  • an individual tax number (ITN)
  • a Canadian business number (BN) with an Underused Housing Tax (RU) program account identifier code

Note

A trust account number (TAN) cannot be used to file Underused Housing Tax returns.

Tax identifier numbers for individuals

Depending on your citizenship, if you are an individual, you must file your Underused Housing Tax return using either a SIN or an ITN.

If you are an individual who is a Canadian citizen or permanent resident, you must use a SIN to file your return.

If you do not already have a SIN, please contact Service Canada for information on how to apply for one.

If you are an individual who is not a Canadian citizen or permanent resident, and you already have a SIN, you must use your SIN to file your return.

If you do not have a SIN, you must use an ITN to file your return. If you do not have an ITN, you must apply for one.

Application for a CRA individual tax number (ITN) for non-residents (Form T1261)

Tax identifier numbers for corporations

If you are a corporation, you must use a business number (BN) with an Underused Housing Tax (RU) program account identifier code to file your Underused Housing Tax return.

If you already have a BN, you will have to register your RU program account before you can file your return.

If you do not have a BN, you must apply for one and register your RU program account before you can file your return.

How to register for a business number or CRA program account

You will be able to register your RU program account online after February 6, 2023. A link will be provided soon. Keep checking this page for updates.

Multiple residential properties

If you are an affected owner who owns two or more residential properties in Canada on December 31, you must file a separate Underused Housing Tax return for each property.

Multiple owners

If you are an affected owner of a residential property in Canada on December 31 who shares ownership with one or more co-owners who are also affected owners, each of you must file separate Underused Housing Tax returns for the property. You must each file separate returns even if your respective ownership qualifies for an exemption.

Keeping records

If you are an affected owner of a residential property in Canada on December 31, you must file an Underused Housing Tax return for the residential property. You must also keep records to support the determination of your obligations and liabilities. Even if your ownership is exempt and you do not have to pay the tax, you must still keep records. If you claim an exemption but do not have adequate records to support that exemption, we may disallow it.