The foreign buyer ban is coming. Here's what it means for Real Estate and Mortgage Agents

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Starting January 1, 2023, the Government of Canada is putting into effect a foreign buyer ban.  More specifically, it is called the Prohibition on the purchase of Residential Property via the Non-Canadians Act.  The act essentially bans non-Canadians from purchasing a property in Canada for a period of two years. Housing affordability has long been on top of the agenda for both federal and provincial governments. The intent of a foreign buyer ban, along with upcoming vacant home tax programs in Toronto and Vancouver is intended to cool down the real estate market to accommodate more end-users and first-time-buyers.  

According to the Canada Mortgage and Housing Corporation, “it’s anticipated that this act will help reduce foreign money coming into Canada to buy residential real estate. ”The prohibition will not apply to Canadian citizens, permanent residents of Canada, or companies incorporated in Canada that are not controlled by non-Canadians and existing agreements (or purchase/sale contracts), where liability arose or was assumed before January 1, 2023, will likely not be impacted. There is, however, a significant potential impact that industry professionals such as Real Estate Agents, Mortgage Brokers, and Lawyers must be aware of.  The act states that anyone who has knowingly assisted in a contravention of the Act may be subject to hefty monetary penalties, up to $10,000 per offence. The definition in the act extends even further to anyone who “knowingly…counsels, induces, aids or abets” in a contravention of the Act by a non-Canadian, or attempts to do so, is guilty of an offence and liable on summary conviction.  The fine can be up to $10,000 per offence. If a corporation or entity commits an offence, its directors, officers, managers, supervisors, agents, and others who have directed, authorized, assented to, acquiesced in, or participated in the contravention may be personally liable. Beyond imposing penalties, the act even allows the Minister to apply to the court for an order to sell a property that has been purchased in contravention of the Act.

Liability can extend to developers, vendors, assignors, lawyers and professional advisors, and others involved in the contravention.  Service providers that ordinarily engage in connection to purchasing properties such as real estate agents, notaries, lawyers, mortgage brokers, and other professional advisors may constitute “counselling” or “aiding” in a purchase by a non-Canadian.

Update:  The Government of Canada introduced additional exemptions to the Foreign Buyer Ban in March of 2023 which include exemptions for work permit holders, properties for the purpose of redevelopment, and land purchases.   Learn more about the new exemptions here.

What do industry professionals such as Realtors® or Mortgage Brokers do to prepare for a foreign buyer ban?

Individuals and corporations participating in the Residential real estate market may consider adding provisions such as whether purchase and sale contracts or services agreements should include protective provisions, such as representations and warranties from purchasers regarding whether they are non-Canadians under the Act. Developers and Real Estate Agents may consider including restrictions on assignments to non-Canadians, and even termination rights that apply if the purchaser is a non-Canadian. Brokerages should consider training admin and compliance staff on the requirements of the Act and should ensure that staff and agents undertake reasonable inquiries and implement a well-documented process as to whether purchasers are non-Canadians.

What are ways for agents to ensure compliance?

If you have individual buyers, you can obtain a Permanent Residency Card, Birth Certificate, or Passport.  Otherwise, buyers can also provide confirmation that they fall under the exemptions (Nominee Exemption, Protected Person (refugee) Exemption, Spousal Exemption).For corporate buyers, confirm that the corporation is registered in the province in which the property is located, obtain the articles of incorporation to confirm how many directors there are, and request the same forms of identification as above to confirm all directors are Canadian Citizens or Permanent Residents. Since the act also has several exemptions for international students, foreign workers, diplomats, and refugees, as well as exceptions for types and locations of properties.  It is important that industry professionals take time to read and understand the act and how it may impact their business.

The Bottom Line

The Prohibition on the purchase of Residential Property by Non-Canadians Act comes into effect on January 1st, 2023, banning non-Canadians from purchasing Canadian Real Estate.  The enforcement of this new act carries severe penalties and repercussions for all those involved in the purchase or sale of properties. Awareness is key, as is implementing compliance processes to ensure purchasers, sellers, and borrowers are compliant with the act and that any parties involved in the transaction are not knowingly aiding a transaction that may contravene with the act.

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