Are foreigners allowed to invest by directly purchasing a commercial real estate asset?
The response to this question is limited to commercial real estate that does not include a residential component. As of 1 January 2023 the federal government proclaimed in force the Prohibition on the Purchase of Residential Property by Non-Canadians. This prohibits foreigners (including Canadian entities such as companies with as little as 3% foreign ownership) from purchasing residential property until at least 31 December 2024. Residential property is defined to be a building with not more than three dwelling units and would exclude, for example, an apartment building with at least 4 units. However, residential property is defined to include land without a habitable dwelling that is zoned residential or mixed use. An acquisition of commercial real estate property with zoning that allows some residential use (even if there is no residential dwelling on the property), could still be caught by the two year ban on foreign acquisition.
At the federal level, the only other restrictions on foreign ownership are in the Investment Canada Act (“the Act”), and only apply to a foreign investor acquiring control of a Canadian business. Any transaction that triggers the relevant dollar threshold is subject to a pre-closing review where the Minister of Industry must be satisfied the transaction is “likely to be of net benefit to Canada.” The threshold amount depends on the nature of the entity purchasing the Canadian business. Some of the categories for review are described below.
In 2023, the review threshold for a WTO investor that directly acquires control of a Canadian business is CA$1.287 billion in enterprise value. The threshold level will be adjusted annually for growth in GDP.
In 2023, the review threshold for foreign state-owned enterprises that are WTO members is CA512 million in asset value.
The thresholds for investments by an investor who is not a “WTO investor” as defined in subsection 14(6) of the Act are CA$5 million in asset value for direct investments and CA$50 million in asset value for indirect transactions. These thresholds also apply to investments made by all non-Canadian investors to acquire control of a Canadian business that is a “cultural business” as described in the Act (generally any business that produces, distributes, or sells magazines, newspapers, video or music recordings, etc).
Finally, any investment of any size by a non-Canadian can be reviewed if the Minister believes it could injure national security.
British Columbia: 20 Additional Property Transfer Tax on Residential Properties in the Greater Vancouver Region, Capital Regional District, Fraser Valley, Central Okanagan and Nanaimo
There is an additional property transfer tax of 20% that foreign nationals, foreign corporations, and foreign taxable trustees pay in addition to the general property transfer tax on transfers of residential property in the Greater Vancouver Regional District, Capital Regional District, Fraser Valley, Central Okanagan and Nanaimo. By regulation, the tax can be applied to other areas in the province. There are no other foreign ownership restrictions in the province.
Ontario: A Non-Resident Speculation Tax in Metro Toronto
Following on the footsteps of Vancouver, Ontario imposed a tax of 25% of the fair market value of residential properties being transferred to non-residents. This tax came into effect on 5 May 2017. Unlike BC, this tax only applies to properties containing up to six units in a single title.
Alberta: No Foreign Buyer Can Own More Than 20 Acres of ‘Controlled Land’
Individuals who are not Canadian citizens or permanent residents, as well as foreign controlled corporations, cannot acquire interests in controlled land consisting of more than two parcels containing not more than 20 acres. “Controlled land” is land outside a city, town, or village. This restriction also applies to leases.
Saskatchewan: Non-Residents and Non-Canadian Owned Entities Cannot Own More Than 10 Acres of ‘Farm Land’
Non-residents of Canada and non-Canadian owned entities cannot own more than 10 acres of farm land. There are limited exceptions to this rule. This restriction covers all types of land interests, including leases. Under the regulations, “farm land” means real property that is situated outside a city, town, or village. It does not include land used for extracting, processing, storing, or transporting minerals or land used primarily for sand and gravel extraction.
Manitoba: Non-Canadians and Non-Canadian Owned Organizations Cannot Own More Than 40 Acres of ‘Farm Land’
Non-Canadian citizens, organizations at least partly owned by non-Canadians, and publicly traded companies and other organizations whose ownership is open to non-Canadians cannot own more than 40 acres of farm land unless an exemption is granted by the Manitoba Farm Industry Board. This restriction applies to most types of interests, including leases. “Farm land” means real property outside a city, town, village or hamlet that is reasonably capable of being used for farming. Like Saskatchewan, the Manitoba legislation exempts land used for the purpose of extracting, processing, storing, or transporting minerals.
Québec: Non-Quebec Residents Cannot Own More Than 4 Hectares (10 acres) of Land
Non-residents of Québec and non-Québec resident entities are not allowed to acquire more than 4 hectares of land below the 50th parallel or in a zone designated as an agricultural zone except with the authorization of the Commission de protection du territoire agricole du Québec. “Farm land” is defined as any land used for agricultural purposes having an area of at least four hectares. This restriction applies to leases as well.
Prince-Edward Island: Non-Residents Cannot Own More Than 5 Acres and Cannot Have a Shore Front of More Than 165 Feet
Non-residents of PEI as well as corporations cannot own land in excess of 5 acres and cannot have a shore front of more than 165 feet. This restriction applies to all land and most types of interests, including leases. The restriction applies to all corporations as opposed to only foreign-owned ones.