Property: acquisition, disposition and development of real property in Canada

By a foreign state / by a member of a foreign mission

Most recent date of change: October 31, 2017

Form: Official Property Acquisition (PDF Version, 1.3 MB)^{Footnote *}
Form: Private Property Acquisition (PDF Version, 1.2 MB)^*

1. Policy statement and objective

1.1 It is the policy and strong commitment of the Government of Canada to accord facilities to a foreign state or a member of a foreign mission acting in a private capacity for the acquisition, disposition and development of real property in Canada, subject to the rules of customary international law and domestic regulations. The Department of Foreign Affairs, Trade and Development (DFATD) is the designated agency primarily responsible for the application of this policy, while Public Works and Government Services Canada (PWGSC) manages and delivers, by virtue of an memorandum of understanding (MOU) with DFATD, the Payment in Lieu of Taxes Program (PILT) in relation to the purchase of real property to be used exclusively for the premises of the diplomatic mission (which include the official residence), consular premises and the residence of the career head of the consular post.

1.2 More broadly and within the context of Canada’s security awareness goals and the international security landscape, this policy takes into account the Royal Canadian Mounted Police’s (RCMP) increasing role in implementing appropriate security readiness levels and other measures for the protection of properties owned and/or leased by foreign states throughout their life cycle, from first acquisition to their development and final disposition.

1.3 The guidelines, rules and regulations as well as policy limitations contained in this document, which apply to all foreign states in Canada without distinction, supersede DFATD’s circular notes XDC-2956 of July 20, 1990, XDC-2771 of January 29, 2001, XDC-2157 of August 30, 2001, XDC-2012 of September 8, 2003 and XDC-0133 of January 31, 2006.

2. Definitions

For the purposes of this policy, the following expressions shall have the following meanings:

2.1 “Foreign state” refers to that which is covered under the State Immunity Act and includes all diplomatic missions and consular posts recognized as such under the Vienna Convention on Diplomatic Relations (VCDR) and the Vienna Convention on Consular Relations (VCCR).

2.2 “Member of a foreign mission” refers to a member of a foreign state acting as a private person and excludes persons that have not been accredited.

2.3 “Real property” means any right, interest or benefit in land. “Real property” also means “immovable” within the meaning of civil law of the Province of Quebec and includes the rights of a lessee in respect of such an immovable.

2.4 “Acquisition” means a transaction that adds new real property to a foreign state in Canada or member of a foreign mission by purchase, lease, exchange, gift, trust, or any other means.

2.5 “Disposition” means a transaction initiated by a foreign state in Canada or member of a foreign mission that alienates real property by sale, lease, exchange, gift, trust, or any other means.

2.6 “Development” means construction, reconstruction or renovation undertaken by a foreign state or member of a foreign mission to real property.

2.7 “Premises of the mission,” referring to Article 1(i) of the VCDR, include the chancery and other buildings and land used exclusively for the purpose of the diplomatic mission and the official residence of the head of mission.

2.8 “Consular premises,” referring to Article 1(j) of the VCCR, include buildings and land used exclusively for the purpose of the consular post, but do not include the residence of a career head of the consular post.

2.9 “Physical possession” means the date on which a real property is effectively occupied and operated as the premises of the mission, consular premises or the residence of the career head of the consular post.

3. Policy requirements (foreign states)

3.1 A foreign state shall seek, through normal diplomatic channels, the written consent of the Department of Foreign Affairs, Trade and Development prior to the acquisition, disposition and development of real property in Canada to be used as the premises of the mission, consular premises and the residence of the career head of the consular post. This includes temporary moves and relocations of missions and official residences due to renovation or other reasons. It is also necessary for a foreign state to obtain Canada’s written approval for purchasing real property that will be used as staff quarters. Requests are to be addressed to the “Department of Foreign Affairs, Trade and Development (Office of Protocol)” and must include:

• a description of the proposed use and occupancy of the real estate, and, where applicable, portions of the property used for staff quarters or even commercial activities (i.e. rental of space to other foreign missions or other tenants);
• the method of acquisition (purchase, lease, licence of occupation, etc.), disposition (by sale, lease, gift, etc.) or development (construction, renovation, demolition, etc.);
• a confirmation that the use to which the real property will be put does not contravene applicable local laws, including but not limited to provincial or municipal by-laws regarding zoning, historical conservation and safety.

3.2 The vetting process by the Department of Foreign Affairs, Trade and Development customarily takes between four (4) and six (6) weeks, in accordance with existing service standards, following which a response is sent to the foreign state by way of a Note Verbale. If the Department of Foreign Affairs, Trade and Development is unable to meet this standard, it will inform the foreign state through normal diplomatic channels after three (3) weeks.

3.3 With respect to acquisition requests, the real property concerned would not normally be considered “inviolable” for the purpose of the Vienna Conventions during the examination process, nor would the Government of Canada have a special duty to ensure its protection during such period. It is therefore the responsibility of the foreign state to plan accordingly.

3.4 A foreign state shall be exempt from municipal realty taxes on real property purchased and used exclusively for the premises of the mission, consular premises and the career head of a consular post beginning from the physical possession date, in conformity with the Diplomatic, Consular and International Organizations’ Property Grants Order. This is referred to as the Payment in Lieu of Taxes Program (PILT). In this regard, the Office of Protocol of Foreign Affairs, Trade and Development will notify the Valuation and Payments in Lieu of Taxes Directorate of PWGSC of the physical possession date once this information has been communicated in writing by the foreign state and that a copy of the property deed has been submitted via normal diplomatic channels. The exemption from property taxes also normally applies to usufruct agreements and emphyteutic leases.

3.5 The Department of Foreign Affairs, Trade and Development shall disclose the date of physical possession to the RCMP in the case of the chancery, the official residence of the head of mission, the consular post and the official residence of the head of consular post. The RCMP is the agency responsible for discharging Canada’s obligations for the protection of foreign states, their missions, consular posts and accredited persons associated therewith. The physical possession date will also be disclosed to the GST/HST Rulings Directorate of the Canada Revenue Agency (CRA) and to the appropriate provincial protocol offices.

3.6 A foreign state shall be liable for municipal realty taxes for non–exempt properties like staff quarters and commercial properties, as well as portions of real property eligible for PILT utilized for staff quarters and commercial activities. It is the responsibility of the foreign state to declare all portions of real property normally eligible for PILT that are specifically utilized for staff quarters and commercial activities so that the tax burden can be apportioned appropriately. (See Circular note XDC-1922 of August 29, 2006).

3.7 A foreign state is not liable for payment of municipal realty tax on leased property, since property taxes are always payable by the owner. However, taxes that are passed on as part of the rent payable are in fact rent and not taxes for which the Lessee foreign state could legitimately claim reimbursement. Also, the tax consequences for a foreign state arising from the disposition of an interest in real property by lease or sale would have to be determined in accordance with the circumstances and facts of each disposition, in consultation with the Canada Revenue Agency (CRA).

3.8 As per the Department’s long-held view, a foreign State is not prima facie sheltered from taxes on capital gains arising from the disposition of diplomatic or consular staff quarters.

3.9 It should be noted that the Government of Canada has no obligation to reimburse the municipal realty tax prepaid to the person/entity from whom real property is acquired by the foreign state.

3.10 It is not necessary for a foreign state to obtain written approval for leasing real property that will be used as staff quarters or a commercial activity. However, foreign states that are using or leasing real property for staff quarters and in the course of commercial activities shall comply with Canadian fiscal, tenancy and other applicable laws. It is worth noting in this regard that immunity may not apply to commercial transactions.

3.11 With respect to the purchase of materials to develop real property (by construction or renovation) exempt from provincial sales tax where authorized, foreign states are encouraged to consult the provincial government directly. As for GST, eligible foreign states, as “end-users”, have a right to recover the GST on goods and services that have been invoiced by the contractor.

4. Policy requirements (members of a foreign mission)

4.1 A member of a foreign mission acting in a private capacity must seek, through his/her Diplomatic Mission, the written consent of DFATD prior to the purchase of real property. Requests are to be addressed to the “Department of Foreign Affairs, Trade and Development (Office of Protocol)” and must include a confirmation that the use to which the real property will be put does not contravene applicable local laws, including but not limited to, provincial or municipal by-laws regarding zoning, historical conservation and safety. It is not necessary to seek permission for leasing property to be used as a personal residence.

4.2 Requests are normally processed by the Department of Foreign Affairs, Trade and Development (Office of Protocol) within ten (10) to fifteen (15) working days, in accordance with existing service standards and unless otherwise specified, following which a response is sent to the foreign state by way of a note.

4.3 Given articles 31 of the VCDR and 43 of the VCCR, a member of a foreign mission is liable for all applicable taxes, municipal and other, arising from the acquisition, use and disposition of the property, even if the property is used for governmental purposes. The tax consequences arising from the sale of an interest in real property would have to be determined in accordance with the circumstances and facts of each disposition, in consultation with the Canada Revenue Agency (CRA).

4.4 With respect to the purchase of materials to develop private real property (by construction or renovation) exempt from provincial sales tax where authorized, foreign diplomats are encouraged to consult the provincial government directly. As for GST/HST, eligible foreign diplomats may recover the GST/HST on goods and services that have been invoiced by the contractor to them as “end-users” in respect of the primary residence only.

5. Property tax exemption in the Province of Quebec

Questions related to property tax exemptions applicable in the Province of Quebec should be directed to the following address below.

Ministère des Relations internationales
Le Protocole
525, René-Lévesque est, 1e étage
Québec, QC G1R 5R9
Telephone: 418-649-2346
Fax: 418-649-2657

Requests for acquisition, disposition and development of real property in that province should nonetheless continue to be addressed the Office of Protocol of DFATD.

6. Restrictions

As of January 2016, the Department no longer accepts requests from foreign States to acquire property along Sussex Drive in Ottawa, a policy that is applied on a uniform basis. For greater clarity on the scope of the affected zone, please contact the Office of Protocol (see Section 8).

7. Reciprocity and more favourable treatment

Nothing in this policy shall be construed as preventing Canada from applying the provisions of this policy restrictively on a basis of reciprocity or to accord a treatment greater than that which is covered herein on the basis of existing and future bilateral agreements.

A word about relief from the federal Goods and Services Tax (GST) or Harmonized Sales Tax (HST) on construction materials and services.

In the Department’s view, there should be a reasonably balanced relationship between GST/HST exemptions granted to foreign states in Canada in respect of official purchases incurred during construction and development projects and tax exemptions extended to Canadian missions abroad. At present, certain diplomatic missions and consular posts are eligible to claim a full or partial GST/HST rebate in relation to invoices on construction service contracts (including architectural and engineering service contracts) and construction materials purchased locally by the mission. Such entitlements may henceforth be readjusted where Canada does not receive comparable (GST, VAT, etc.) treatment abroad.

8. Enquiries

For interpretation and application of this policy, diplomatic missions should contact:

Manager, Privileges and Immunities
343-203-3013

Advisor, Privileges and Immunities
343-203-2973

Deputy Director, Privileges, Immunities and Accreditation
343-203-3021

RCMP Security and Safety Liaison Officer
343-203-2976

Designated and authorized personnel in Diplomatic Mission may also access the Extranet Site. For username and password, please refer to circular note XDC-1853 dated August 2, 2007.

Appendix A - Frequently asked questions

• Foreign states
• Foreign representatives in a private capacity

Frequently asked questions (foreign states)

1. What properties acquired by a foreign state are eligible for a grant from the Government of Canada in lieu of taxes? Are there exceptions to this rule?

Under normal circumstances, diplomatic premises (which includes the official residence), consular premises and the residence of the career head of a consular post, when owned by the foreign state, are eligible for the grant in lieu of taxes. This should be considered as Canada’s domestic application of Articles 23(1) of the Vienna Convention Diplomatic Relations and 32(1) of the Vienna Convention on Consular Relations. Other properties, namely staff quarters, of certain foreign countries may also enjoy tax exempt status on the basis of special bilateral arrangements. This, however, is a rare occurrence.

2. Article 23(1) of the Vienna Convention on Diplomatic Relations makes it clear that premises of the mission, whether owned or leased, are tax exempt. Yet, the Government of Canada refuses to pay realty taxes when a Mission rents offices. Is Canada neglecting its international obligation?

A foreign state is not liable for payment of municipal realty tax on leased property, since property taxes are always payable by the owner. However, taxes that are passed on as part of the rent payable are in fact rent and not taxes for which the Lessee foreign state could legitimately claim reimbursement. Articles 23(2) of the Vienna Convention on Diplomatic Relations and 32(2) of the Vienna Convention on Consular Relations removes the exemption from Missions and Posts for taxes which the landlord may be required to pay and which are passed on to the Mission and Post by inclusion in a leasehold agreement as part of the rent payable. Taxes which are not in the first instance payable by lessors and not capable of being included in the leasehold agreement are not required to be paid by a Mission or Post under Articles 23(1) of the Vienna Convention Diplomatic Relations and 32(1) of the Vienna Convention on Consular Relations.

3. When is a Mission exempt from the Land Transfer Tax? What is the procedure to apply for such exemption?

All acquisitions of property are subject to approval by the Government of Canada (see section 3). If a property owned by a foreign state is deemed tax exempt and eligible for the grant in lieu of realty taxes, the Department’s Office of Protocol will inform the Mission accordingly. It will also specify at that time that the Mission approves the rebate from the Land Transfer Tax. In order to obtain the exemption from the Land Transfer Tax prior to the purchase date, the Mission must submit the Office of Protocol’s note of approval, the Agreement of Purchase and Sale and the Property Deed to:

Ministry of Finance
Land Taxes Section
33 King Street West
PO Box 625
Oshawa, Ontario L1H 8H9

Alternatively, Missions can elect to pay the Land Transfer Tax after the purchase date and request a reimbursement following such date. In this instance, the Mission will be required to submit the note of approval, the Agreement of Purchase and Sales, the Property Deed and the proof of payment of the Land Transfer Tax to the following:

Ministry of Finance
Land Taxes Section
33 King Street West
PO Box 625
Oshawa, Ontario L1H 8H9

For general inquiries regarding the application of the Land Transfer Tax in Ontario, Missions may call 905-433-6361.

4. How can a Mission obtain further information on the topic of taxes in relation to real property?

During normal business hours (9:00 a.m. to 4:00 p.m.), Missions can speak to a representative of the Office of Protocol at 343-203-3002.

Frequently asked questions (foreign representatives)

1. Are foreign representatives exempt from any level of taxation when purchasing or disposing of a real property?

Given articles 31 of the Vienna Convention on Diplomatic Relations and 43 of the Vienna Convention on Consular Relations a member of a foreign mission is liable for all applicable taxes, municipal and other, arising from the acquisition, use and disposition of the property. Also, the tax consequences for a foreign state arising from the disposition of an interest in real property by lease would have to be determined in accordance with the circumstances and facts of each disposition, in consultation with the Canada Revenue Agency (CRA). It should be additionally emphasized that relief from GST does not apply to purchases of real property acquired for personal use. However, a GST new housing rebate may be available in this instance subject to the normal rules. Interested foreign representatives should contact the CRA directly.

2. Surely foreign representatives are exempt from the Land Transfer Tax?

Foreign representatives, when purchasing real property in a private capacity, are not exempt from the Land Transfer Tax.

3. Are foreign representatives exempt from the Capital Gains Tax when selling a real property purchased in a private capacity?

See Circular Note XDC-0346 of April 20, 2006, which outlines the Canadian policy regarding personal income tax, capital gains tax and other taxes arising from sources within Canada.

4. If a Canadian diplomat is exempt from realty taxes when purchasing a property in the country of the sending state, does this mean that a foreign representative from that state can equally enjoy tax-exempt status when purchasing real property in Canada?

There is no provision under the Department’s policy to exempt foreign representatives from taxation when purchasing or disposing of real property in Canada. However, as bilateral tax treaties may apply, especially in the area of property disposal, the Department encourages all those concerned to contact the International Tax Services Office for guidance at 1-800-267-5177 or visit the Web site at Non-residents of Canada for guidelines.

5. How can a member of a Mission obtain further information on the topic of taxation in relation to real property?

During normal business hours (9:00 a.m. to 4:00 p.m.), Missions can speak to a representatives of the Office of Protocol at 343-203-3002.

Appendix B - Diplomatic, Consular and International Organizations' Property Grants Order

Order Respecting Payments in Lieu of Real Estate Taxes, Local Improvement Costs, and Development and Redevelopment Taxes on Diplomatic, Consular and International Organizations’ Property

SI/79–19

Appropriation Acts

Order Respecting Payments in Lieu of Real Estate Taxes, Local Improvement Costs, and Development and Redevelopment Taxes on Diplomatic, Consular and International Organizations’ Property

1. Short Title

This Order may be cited as the Diplomatic, Consular and International Organizations’ Property Grants Order.

2. Interpretation

In this Order, “diplomatic property” means

1. real property in Canada owned by a foreign government or the head of the diplomatic mission of a foreign government and used as
   1. the chancery or offices of the diplomatic mission, or
   2. the official residence of the head of the mission of that government,
2. real property in Canada owned by a foreign government and used as
   1. the chancery or offices of a consular post or trade commission, or
   2. the official residence of the head of a consular post or trade commission of that government, or
3. real property in Canada owned by an international organization and used as
   1. the chancery or offices, or
   2. the official residence of the head of a mission of that international organization; (propriété diplomatique)

3. Grants

Subject to section 5, on receipt of an application from a municipality in a form prescribed by the Minister of Finance, the Secretary of State for External Affairs may pay to the municipality, in respect of diplomatic property:

1. grants in lieu of real estate taxes and local improvement costs in the amount that might be paid pursuant to the Municipal Grants Act if the diplomatic property were federal property as defined in that Act; and
2. grants in lieu of development or redevelopment taxes of a type and in the amount that might be paid pursuant to the Development Tax and Redevelopment Tax Grant Regulations if those Regulations applied to the diplomatic property.
3. Subject to section 5, on receipt of an application from a province in a form prescribed by the Minister of Finance, the Secretary of State for External Affairs may pay to the province, in respect of diplomatic property, a grant in lieu of real estate taxes in the amount that might be paid pursuant to the Real Property Grants Regulations if the diplomatic property were federal property as defined in those Regulations.
4. Where any real estate taxes, local improvement costs or development or redevelopment taxes referred to in section 3 or 4 are payable over a period of more than one year and the person liable to pay those taxes or costs has the option to pay them in annual instalments together with interest at a rate prescribed by a municipality or province, the Secretary of State for External Affairs may pay to the municipality or province the grants payable under section 3 or 4 in annual instalments together with interest at the rate prescribed by the municipality or province.