Lack of clarity and short consultation period leaves lawyers open to fines, group says
Before the confusion exposes real estate lawyers to large fines or human rights complaints, the federal government should scrap the Prohibition on the Purchase of Residential Property by Non-Canadians Act, says the Federation of Ontario Law Associations (FOLA).
FOLA sent a letter to ministers Chrystia Freeland, Ahmed Hussen, and David Lametti (Finance, Housing and Diversity and Inclusion, and Justice), raising concerns with the legislation that is set to come into force on Jan. 1, 2023. In the letter, the organization, which represents 46 Ontario law associations and their members, said the act regulates matters under provincial jurisdiction, and creates a standard of care for lawyers engaged in real estate transactions which requires them to verify whether a party to a deal is a non-Canadian or face a $10,000 fine.
“The worst-case scenario is that it's going to be left up to the lawyers to understand how this legislation is supposed to be applied, and if they guess wrong, they could be liable up to $10,000 each time,” says Mark Giavedoni, FOLA real estate chair and partner in Gowling WLG's Hamilton office.
Provinces, including Ontario and BC, have implemented measures to restrict property sales to non-Canadians. On Tuesday, Ontario raised the non-residential speculation tax on homes purchased by non-Canadians from 20 to 25 percent, which provincial Finance Minister Peter Bethlenfalvy said made it the highest tax of its kind in the country.
The federal legislation regulates matters falling “within the Provincial jurisdiction of property and civil rights,” and it does not appear failure to comply would amount to a criminal offence, making federal interference unnecessary, said FOLA.
The letter also states the consultation period was “extraordinarily short” and did not allow enough time for a meaningful response from those whom the legislation will impact.
FOLA warns that lawyers may not take certain work if they believe there is a chance the client is a non-Canadian, or if verifying who controls a corporation or is a trust beneficiary becomes too onerous. In 2018 in Kau v. The Queen, the Tax Court held a condo buyer liable for $90,000, under s. 116 of the Income Tax Act, because the buyer failed to make a “reasonable inquiry” as to whether the seller was a non-resident. According to FOLA’s letter, the ruling in Kau means that a lawyer cannot rely just on a person’s declaration but must make a reasonable inquiry into their residency status. When it comes to corporate purchasers of real estate, lawyers will need to scrutinize every shareholder.
If this takes too much time and effort and lawyers avoid clients who they suspect could be non-residents, those lawyers leave themselves open to human rights violations, said FOLA.
“The risk is that you've got, potentially, lawyers and real estate agents not helping people that may actually not be non-Canadians,” says Giavedoni.
As it stands, it is unclear how the legislation would treat a trust that needs to be wound up and distributed, when some of the assets are going to be distributed to a non-Canadian, he says.
“That's the type of thing that could cause some problems, and the fact that each province has its own rules about such things doesn't make this any easier. Trying to legislate this type of prohibition for Ontario – it'll be different for Quebec, which will be different from Alberta, which will be different all around.”
If Ottawa does not revoke the legislation, FOLA requests a “more fulsome dialogue” with practitioners and other stakeholders.