If you have plans to buy or sell residential real estate in 2023, you should be aware of new laws the federal government has passed in an attempt to cool down the residential real estate market.

On January 1, 2023, new laws passed by the federal government will come into force which will ban the purchase of residential real estate by non-Canadians and expose property flippers to full taxation of their profits as business income.

Foreign Buyer Ban

The Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) comes into force on January 1, 2023. The Act is valid for two years from January 1, 2023 to December 31, 2024. The Act prohibits non-Canadians from purchasing, either directly or indirectly, any residential property in Canada. This means non-Canadian individuals cannot purchase residential property themselves, or through a corporation, trust, or other legal entity.

The Act applies to all residential property, including detached houses or similar buildings of one to three dwelling units, any prescribed real property or immovable, as well as parts of buildings such as semi-detached houses, rowhouse units, condos, and also vacant land zoned for residential or mixed-uses in certain areas.

The penalty for violating this prohibition, or aiding anyone in violating this prohibition, is liable to a summary conviction and a fine of up to $10,000.00. Further, if you are convicted of an offence under the Act, you may be forced to sell the residential property subject to certain conditions, such as only for the purchase price at which the property was obtained.

Nonetheless, section 4(2) of the Act outlines exceptions to this law. For example, the Act does not apply to refugees, a temporary resident within the meaning of the Immigration and Refugee Protection Act who satisfies prescribed conditions, as well as an individual who is a non-Canadian and who purchases residential property in Canada with their spouse or common-law partner if the spouse or common law-partner is a Canadian citizen.

Anti-Flipping Laws

Currently, the sale of one’s primary residence is non-taxable in Canada, subject to certain conditions under the Principal Residence Exemption (PRE). Under current rules, to categorize the proceeds of the sale of residential property as business income, the burden is on the Canada Revenue Agency (“CRA”) to prove that the taxpayer’s intention was to flip a property.

With the new taxation laws, any residential property sold on or after January 1, 2023, that is held for a period of less than 12 months (365 days) will be considered a “flipped property”. Consequently, the seller will be automatically subject to full taxation of their profits as business income. Further, the introduction of the new tax laws removes the burden from the CRA to prove the taxpayer’s intention in flipping a residential property.

Nonetheless, there are a few exemptions to this new tax law. Canadians who sell their home within 12 months due certain life circumstances, such as a death, disability, the birth of a child, a new job, or the breakdown of a relationship will be exempt from paying full taxation of their profits. The federal government is still drafting the regulations concerning the exemption, and this list is non-exhaustive.

Conclusion

We offer legal services for prospective buyers of both commercial and residential real estate. If you have any questions about this topic or need legal advice in relation to this or any other issue, please contact us to set up a consultation. We can be reached at 604-705-0022 or by email at info@sorensensmith.com.