Cooling Canada’s red-hot housing market: Foreign buyer and anti-house flipping laws anticipated to take effect January 2023

New foreign buyer and anti-house flipping measures will slam the door on non-Canadians from buying up residential properties and property flippers will be subject to full taxation of their profits as business income.

These are just some of the measures the federal government is in the process of enacting to cool down Canada’s overheated housing market. The new legislation was first proposed in Budget 2022:  A Plan to Grow Our Economy and Make Life More Affordable. 

Chapter 1 of this year's federal budget, tabled in Parliament on April 7, 2022,  summarizes the government's goal of making housing more affordable for Canadians. The budget explains that there are many factors making housing more expensive, the biggest factor being supply.

In addition to supply, foreign investors are driving up the cost of housing in Canada. Section 1.4 of the budget stipulates the government's intention to propose restrictions to prohibit non-Canadians from acquiring residential property, and the implementation of a new anti-house-flipping measure.

Foreign Buyer Ban

On April 28th, 2022, the federal government introduced Bill C-19 titled “An Act to implement certain provisions of the budget tabled in parliament on April 7, 2022, and other measures.” Section 235 of the bill introduces the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the act).  Bill C-19 received royal assent on June 23, 2022. The act will come into force on January 1, 2023, and will be in effect until January 1, 2027.  

Outcome

As per section 4 of the act, despite section 34 of the Citizenship Act, it is prohibited for a non-Canadian to purchase, directly or indirectly, any residential property.

Impact

The act prohibits non-Canadians from purchasing residential property. A non-Canadian is defined in the act as:

1. an individual who is neither a Canadian citizen nor a person registered as an Indian under the Indian Act nor a permanent resident;
2. a corporation that is incorporated otherwise than under the laws of Canada or a province;
3. a corporation incorporated under the laws of Canada or a province whose shares are not listed on a stock exchange in Canada for which a designation under section 262 of the Income Tax Act is in effect and that is controlled by a person referred to in paragraph (a) or (b); and
4. a prescribed person or entity. 

Exceptions

People who are exempt from the Prohibition include: 1) temporary residents within the meaning of the Immigration and Refugee Protection Act, 2) non-Canadians who purchase property with a Canadian spouse, and 3) people registered under the Indian Act.  

Penalties

Every non-Canadian that contravenes the Prohibition and every person or entity that counsels, induces, aids or abets or attempts to counsel, induce, aid or abet a non-Canadian to purchase, directly or indirectly, any residential property knowing that the non-Canadian is prohibited under this act from purchasing the residential property is guilty of an offence and liable on summary conviction to a fine of not more than $10,000.

Additionally, section 7(1) of the act entitles the superior court of the applicable province to order the sale of a property purchased in contravention of the act in a prescribed manner under prescribed conditions as the court sees fit.

Property Purchased by a Non-Canadian Before January 1, 2023

The prohibition does not apply if the non-Canadian becomes liable or assumes liability under an agreement of purchase and sale of the residential property before January 1, 2023.

Anti-Flipping Tax

This year's federal budget also speaks to the introduction of a new tax targeted at property flippers with the goal of making them "pay their fair share." Currently, many taxpayers are able to sell their homes quickly by claiming capital gains and/or the principal residence exemption.  With the introduction of the anti-flipping measure, Canadians who sell their home or rental residential property that they held for less than 12 months will be considered to be flipping properties. Consequentially, they will be subject to full taxation of their profits as business income.

Currently, the onus is on the Canada Revenue Agency to prove that a taxpayer is carrying on a business of flipping property that would be subjected to full taxation of their profits as business income. The introduction of the anti-flipping measure eliminates the CRA's burden to prove same. Furthermore, the proposed tax takes effect as a deeming provision; any profit accrued on a house sold less than 365 days after purchase will automatically be designated as income and must be reported as such for tax purposes.

Enactment

On August 9, 2022, draft legislation was introduced setting out the government’s new anti-flipping rules to take effect in 2023. Once proposed legislation comes into force, the anti-flipping measure will apply in respect of residential properties sold on or after January 1, 2023. 

Exceptions

Exceptions to the anti-flipping measure will apply to select Canadians who are subject to certain life circumstances such as: 1) death, 2) serious illness or disability, 3) birth of a child, 4) job loss or relocation, 5) a divorce, 6) insolvency, 7) threat to personal safety, or 8) property destruction.

Non-Capital Loss

A taxpayer's loss for the year excludes a loss from the disposition of a flipped property. The disposition of a flipped property will not result in a non-capital loss.

This article was updated February 12, 2024.  

Fillmore Riley LLP's Taxation Practice

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