Canada: 2012 Investment Canada Update


If you wish to invest in Canada but are neither a Canadian citizen nor a permanent resident within the meaning of the Immigration Act, then you are a "non-Canadian" and must comply with the provisions of the federal government's Investment Canada Act. For these purposes, a non-Canadian includes any entity controlled or beneficially owned by non-Canadians.

Virtually every new business acquisition or investment in Canada by a non-Canadian is either notifiable, i.e., the Investment Canada Act requires a Notification document to be filed, or, is reviewable, ie., an Application for Review must be filed. This includes both direct and indirect acquisitions.

What is notifiable?

If you are a non-Canadian, you must file a Notification each and every time you commence a new business activity in Canada, and each time you acquire control of an existing Canadian business where the establishment or acquisition of control is not a reviewable transaction. Notifications must be filed no later than 30 days after the implementation (i.e. closing, generally) of the investment. Notification need not be given in advance of implementation.

What is reviewable?

Whether an investment is reviewable depends on the country of the investor, the value of the acquisition, and the nature of the investment. Generally, where the investment comes from a World Trade Organization ("WTO") country, an Application for Review is only required for direct investments in excess of a figure that is adjusted annually (asset value exceeding $330 million for investments completed in 2012).

Note that as a result of legislation enacted in mid-2009, but not yet in force, this general threshold will increase to $600 million on a date to be announced, and thereafter increase in stages to $1 billion. Instead of asset value, the new test will look at enterprise value. Enterprise value for publicly traded entities will equal market capitalization, plus liabilities, minus cash and cash equivalents, while enterprise value of a privately held company will equal acquisition value, plus liabilities, minus cash and cash equivalents.

Indirect acquisitions by WTO countries are generally not reviewable. WTO member countries include most of the principal economies of the world, including Taiwan.

However, investments from WTO member countries in a cultural business are reviewable if the value of the transaction exceeds five million dollars for direct acquisitions, or exceeds $50 million for indirect acquisitions. Cultural businesses are very broadly defined to include the publication, distribution or sale of books, magazines, periodicals, newspapers, film, video recordings, audio, video music recordings, music in print or machine readable form, and radio communications including any radio, television and cable television broadcasting undertakings and satellite programming and broadcasting. The government gives as an example a corner store selling a variety of magazines, and takes the position that this is the carrying on of a cultural business requiring review. It is important to note that even investments in the cultural industry below the $5 million and $50 million limits set out above, are normally made subject to review by a special order-in-council passed by the federal Cabinet within 21 days after a Notification is filed.

Where the investor is non-Canadian and not from a WTO member country, generally an Application for Review is mandatory wherever the investment is more than five million dollars in the case of direct acquisitions and more than $50 million for indirect acquisitions.

Please note that other legislation may apply to restrict investments in other sectors, principally banking and telecommunications, in respect of which Gowlings may also provide advice and Government Affairs services.

What about national security reviews?

A review may also be ordered in respect of an investment, regardless of size or type, if the Minister has reasonable grounds to believe that the transaction could be injurious to national security. No guidelines are issued to assist in identifying national security investments. The government may initiate a national security review any time before and up to 45 days after notification of the investment transaction.

How long does it take?

The Investment Canada Act allows the Minister 45 days to determine whether or not an Application for Review should be allowed, but the Minister may unilaterally extend by an additional 30 days. Cultural industry reviews often require at least 75 days to complete. The national security provisions add considerably to the delays in completing an investment in Canada for those transactions singled out for possible review.

What does likely net benefit to Canada mean?

Likely net benefit to Canada is a test which focuses on the level of economic activity in Canada including employment, resource processing and utilization of parts and services produced in Canada and Canadian exports, together with the degree and significance of participation by Canadians in the business, the effect of the investment on productivity, competition, national industrial economic and cultural policies and the contribution of the investment to Canada's ability to compete in world markets, among other matters.

May I proceed without the Minister's approval?

This depends on the type of transaction.

A reviewable investment may not be implemented (i.e., closed) prior to the investor receiving a decision from the Minister that the investment is of "net benefit" to Canada (or, in the case of national security reviews, until the Minister is satisfied that the investment would not be injurious to national security).

A notifiable investment may be closed without approval, except in the case of cultural industries where to do so carries the risk of an after-the-fact veto by the Minister. Formal or informal consultation is recommended in the case of cultural investments.

Who approves the transaction?

The Minister generally responsible for the Investment Canada Act is the Federal Minister of Industry.

The Minister of Canadian Heritage is responsible investments related to the cultural sector including books and films.

Both Ministers are in Ottawa along with their public servants.

Federal officials solicit the views of provincial governments in respect of reviewable transactions.

They also seek input from other federal departments prior to making a final decision. Gowlings provides legal advice and full Government Affairs support in dealing with both Federal and Provincial officials on all Investment Canada matters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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