Can Foreigners Buy Property in Canada? The Foreign Buyer Ban

Posted by Dave Kotler on Wednesday, October 2nd, 2024 at 10:16am.

Foreigners considering buying property in Canada—ranging from primary residences to investment properties—must navigate several regulations under the Prohibition on Purchase of Residential Property by Non-Canadians Act, effective January 1, 2023. This act restricts non-Canadians, including corporations, from purchasing residential properties with up to three units. However, there are notable exceptions. Additionally, understanding tax obligations is essential, as foreign buyers face taxes on rental income and property sales. So, how does one guarantee compliance and avoid costly mistakes?

For informational purposes only. Always consult with a real estate attorney and tax advisor before proceeding with any real estate transaction as a Canadian non-resident.

Key Takeaways of Canada’s Foreign Buyer Ban

From January 1, 2023, to January 1, 2027, non-Canadians are banned from buying residential properties with three or fewer units in Census Metropolitan Areas (CMAs) and Census Agglomerations (CAs).
The foreign buyer ban may be extended in the future.
Exemptions include buying together with an eligible partner, valid study permits, or work permits with at least 183 days remaining.
Non-resident buyers in British Columbia face a 20% Foreign Buyers Property Transfer Tax in specified regions, even for property types otherwise eligible under the ban (ex. large multifamily buildings).
Foreign investors must adhere to a 25% withholding tax on gross rental income unless eligible deductions are claimed.
Non-resident sellers are subject to withholding tax on property sales, reducible with a timely Certificate of Compliance application.

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

The Prohibition on the Purchase of Residential Property by Non-Canadians Act, effective January 1, 2023, places strict limits on non-Canadians buying residential properties within Canada. Under this act, non-Canadians can't purchase residential properties with three or fewer dwelling units until January 1, 2027. This legislation aims to make housing more affordable overall.

Additional regulations have clarified that these restrictions don't apply to properties outside Census Metropolitan Areas (CMAs) and Census Agglomerations (CAs). The CMHC provides an online tool that helps show where non-Canadians can still purchase.

The act defines non-Canadians as individuals who aren't Canadian citizens or permanent residents, including corporations controlled by non-Canadians.

Violating this act can have serious consequences. If someone is found guilty, they could face fines of up to $10,000. Courts may also order the sale of any improperly acquired property, with the violator receiving no more than the amount they paid for the property out of the proceeds.

The Canada Revenue Agency (CRA) monitors transactions involving non-residents to guarantee compliance and manages reporting requirements.

Understanding these regulations is vital for non-Canadians considering buying property in Canada. This knowledge helps them avoid legal pitfalls and guarantees their transactions comply with Canadian law.

Who Is Exempt From Canada’s Foreign Buyer Ban?

Under specific conditions, non-residents with Canadian spouses or common-law partners, certain students, and employees holding valid work permits can purchase property.

These exceptions help ensure that individuals closely tied to Canada aren't unfairly restricted from property ownership.

Non-residents with Canadian Spouses/Common Law Partners

When looking to buy property in Canada, non-residents with Canadian spouses or common-law partners can sigh in relief. They’re exempt from the foreign buyer ban, allowing them to purchase residential properties without worrying about the Prohibition on the Purchase of Residential Property by the Non-Canadians Act. This exemption includes detached houses or buildings with up to three dwelling units.

It doesn't matter where a non-Canadian and their Canadian spouse or partner live. They’re fine if their marital or common-law partnership status is legally recognized in Canada. Be prepared to provide documentation proving relationship status when purchasing a property. This can include marriage certificates or official records of common-law partnerships.

Non-Canadians may purchase property together with a partner who:

Is Canadian
Is registered under the Indian Act
Is a permanent resident
Is a non-Canadian for whom the ban does not apply (ex. the exemptions below)

Remember, this exemption only applies to the purchase of residential properties and doesn't affect other potential restrictions or tax obligations a non-resident buyer might face.

Some International Students

Temporary residents who are studying in Canada may be eligible to buy property under certain conditions. Typically, they must hold a valid study permit and have lived in Canada for a specific period. This exemption acknowledges the long-term commitment international students make to the country by:

Having filed Canadian income tax returns for five years prior to the purchase year
Having been present in Canada for two-thirds of each of those years (244 days)

International students who meet these requirements can purchase one house in Canada that costs $500,000 or less.

To qualify, students must demonstrate continuous residency and active enrollment in an accredited institution. This means they can't just hold a permit; they must actively pursue their studies.

Check with local authorities to verify that you meet all the necessary criteria, as regulations vary slightly across provinces. Understanding these exemptions can be essential for those planning to invest in property during their stay.

Always consult with a legal expert specializing in Canadian real estate to navigate the specifics of the situation. Doing so guarantees students comply with all regulations and avoid fines or legal issues. This exemption offers a valuable opportunity for students seeking a more permanent presence in Canada.

Employees With Work Permits

The foreign buyer ban presents fewer hurdles for non-Canadian employees holding valid work permits. Those with valid work permits can buy one residential property in Canada if their permit has at least 183 days (half a year) remaining at the time of purchase.

Make sure to have all the necessary documentation ready. Show proof of a work permit, verify status, and provide evidence of residency in Canada. This paperwork is essential for compliance and ensuring a smooth purchase.

Other Exemptions

Property acquisitions resulting from divorce, separation, or death are exempt from the ban and won't be classified as purchases.

Indigenous peoples are not subject to the foreign buyer ban where it conflicts with rights recognized in Section 35 of the Constitution Act of 1982.

Refugees, refugee claimants, and accredited members of foreign missions with valid acceptance issued by the Chief of Protocol of Canada are exempt from the foreign buyer ban.

A non-Canadian renting a property does not constitute a purchase, and so isn’t affected by the ban.

Property Types Non-Canadians Can Buy

Foreigners Can Buy Certain Types of Property in Canada

The Act is specifically meant to keep residential properties with one, two, or three units available to Canadian homebuyers, particularly in cities. Non-Canadians and non-Canadian corporations can still purchase several types of properties:

Multifamily buildings with four or more units
Purely commercial properties, such as offices and industrial property
Vacant land
Residential property purchased for development, including redevelopment (distinct from repairs, remodels, etc.)
Residential and recreational properties located away from population centres

REITs formed in Canada can also purchase property, assuming that the REIT meets certain criteria. If the REIT is publicly traded on a Canadian stock exchange, it can be controlled by a non-Canadian; if it’s not publicly traded, it must be controlled 90% by Canadians. Purchases for development can be made regardless of trade status.

Foreign Investors Must Pay Canada Income Tax

Although owning property in Canada can be a lucrative investment, foreign investors must navigate the country's tax regulations carefully. Foreign investors are subject to a 25% withholding tax on gross rental income earned from their Canadian properties, which must be reported to the Canada Revenue Agency (CRA).

However, they can mitigate this tax burden by filing taxes with the CRA, which allows them to claim eligible expenses like mortgage interest, repairs, and property management fees.

To avoid withholding tax on gross income and instead paying taxes on net income, foreign investors must complete the NR6 form with the CRA when claiming rental income. This form guarantees they’re taxed on their net revenue rather than total income, allowing them to offset part of their tax liability with eligible expenses.

Foreign investors who sell property in Canada may also be liable for capital gains tax on the profit earned from the sale. This tax is calculated based on the difference between the sale price and the property's adjusted cost base.

Compliance with these tax obligations is essential, as failure can result in significant penalties and legal consequences.

Foreign Buyers Property Transfer Tax May Apply in British Columbia

For foreign buyers considering buying property in British Columbia, be prepared for the potential application of the Foreign Buyers Property Transfer Tax (FBPTT). This tax is an additional 20% levy on the fair market value of residential property purchased by foreign buyers in specified areas. It aims to address the impact of foreign investment on local housing markets.

To avoid unexpected costs, be aware of the areas where this tax applies, which include Metro Vancouver, Fraser Valley, Capital Regional District, Nanaimo Regional District, and Central Okanagan.

The tax is imposed regardless of whether a foreign buyer purchases alone or with a Canadian citizen or permanent resident.

For example, if they’re buying a $1 million home in one of these areas, the FBPTT would add another $200,000 to their closing costs. Consequently, accurate budgeting is vital.

Foreign buyers should also consult a local real estate lawyer or tax advisor to understand the full implications and guarantee compliance with all regulations.

Non-Resident Home Sellers Will Pay Taxes on Gains

Canadian Non-Residents Pay Capital Gains Tax on Home Sales

The Canada Revenue Agency (CRA) requires non-resident sellers to deal with a withholding tax on real estate sales. Typically, 25% of the sale price is withheld, though it can be 50% in certain cases. This guarantees security for any taxes owed.

Non-resident sellers can then apply for a Certificate of Compliance, which releases the difference between the withheld amount and the actual taxes owed. They must file for this certificate within 10 days after closing or risk a penalty of $25 per day, up to $2,500. The CRA may take several months to process the application.

After the calendar year ends, non-resident sellers must file a Canadian T1 tax return, which might result in a refund if their actual tax liability is lower. Additional factors such as principal residence exemptions and non-resident surtaxes may also apply.

Due to the many layers of complexity, non-resident sellers should consult with professional real estate and tax lawyers to ensure compliance with Canadian tax law.

Frequently Asked Questions

What Is the New Law for Foreigners Buying Property in Canada?

The new law restricts non-Canadians from purchasing properties with three or fewer dwelling units in most areas until January 1, 2027. They can only buy residential property in Canada if they meet certain exemptions.

Can I Buy Property in Canada as a Non-Resident?

Non-residents can buy property in Canada, but there are restrictions. Residential properties in urban areas are generally off-limits unless you qualify for exemptions. You can still buy outside urban areas—be aware that the minimum population to qualify as an “urban area” in this case is 10,000 people.

What Are the New Rules for Buying a House in Canada in 2024?

In 2024, non-Canadians cannot buy residential properties in urban areas unless they meet specific exemptions. Examples include temporary residents and those buying with Canadian partners, but strict documentation is required.