What types of collateral are available?
Generally speaking, all types of real and personal property (or moveable and immoveable property in the case of the province of Quebec) are available to be pledged as collateral for indebtedness under the real and personal property security regimes of each of the provinces and territories of Canada, under whose jurisdiction security in the vast majority of assets generally fall. Such property and assets would include real estate, operating and other licence rights, concession rights, leaseholds, buildings, personal and moveable property, contractual rights, receivables, shares and other securities, bank accounts, whole enterprises, as well as after-acquired property and proceeds from any of the foregoing.
In the case of certain types of property such as a licence, privilege, quota or franchise, and property subject to certain federal legislation such as the Canada Shipping Act, the Copyright Act (Canada), the Integrated Circuits Topography Act (Canada), the Industrial Designs Act (Canada), the Patent Act (Canada), the Plant Breeders' Rights Act (Canada), the Canada Transportation Act, the Trademarks Act (Canada), and the Financial Institutions Act (Canada), a security interest may not be perfected, valid, binding or enforceable to the extent that the nature or terms of such property, or any statute or regulation regulating the same, require additional consents, approvals, acknowledgements or other authorisations or registrations to be made.
2 Perfection and priority
How is a security interest in each type of collateral perfected and how is its priority established? Are any fees, taxes or other charges payable to perfect a security interest and, if so, are there lawful techniques to minimise them? May a corporate entity, in the capacity of agent or trustee, hold collateral on behalf of the project lenders as the secured party?
A security interest in collateral is generally perfected in Canada by the registration of a financing statement or the relevant security document (or both) under the applicable real or personal property security registration regime applicable in each province. Priority is established from the time of filing, with the first to file having the highest priority, subject to certain statutory exemptions. The only fees generally payable with respect to the perfection of a security interest by way of registration relate to filing fees in respect of the financing statement or applicable security document, and are typically of a nominal or modest nature.
3 Existing liens
How can a creditor assure itself as to the absence of liens with priority to the creditor's lien?
There exist in each province and territory of Canada real and personal properties registries where title to real property may be ascertained and, in the case of personal property, prior security interests granted by the debtor are disclosed. For example, in the case of real estate, prior registered security interests would be disclosed by a search at the applicable land title or land registry office where the real property is situated. In the case of personal property, a search is conducted against the name of the proposed grantor of the security, which will reveal if such proposed grantor of security has previously granted security and, if so, over what assets such grant has been made. These registries are generally considered to be highly reliable and are, in addition, backed by assurance funds established by the government to validate their accuracy.
As bankruptcy and insolvency is a matter that falls within the federal jurisdiction, a search of the federal bankruptcy records must be made: see question 19. In addition, certain types of special property interests might require searches to be conducted under the specific legislation governing such property interests: see question 1.
4 Enforcement of collateral
Outside the context of a bankruptcy proceeding, what steps should a project lender take to enforce its rights as a secured party over the collateral?
There are a number of enforcement alternatives available to a secured creditor including appointing a receiver, seeking a court order appointing a receiver, as well as conducting a private or public sales process with or without court proceedings. There are relevant notice periods prescribed by statute but generally these notice requirements can be avoided through court proceedings. Project lenders can participate as a buyer in an insolvency sale particularly if the sale process is conducted in conjunction with a court proceeding.
5 Bankruptcy proceeding
How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the collateral? Are there any preference periods, clawback rights or other preferential creditors' rights (eg, tax debts, employees' claims) with respect to the collateral? What entities are excluded from bankruptcy proceedings and what legislation applies to them? What processes other than court proceedings are available to seize the assets of the project company in an enforcement?
Generally speaking a secured creditor is not prevented from taking enforcement proceedings in a bankruptcy. There are processes under insolvency legislation that can stay a secured creditor's right to take enforcement proceedings unless prior court approval is obtained.
There a number of statutorily created priorities including for payroll withholdings and taxes collected but not remitted. There are provisions in federal and provincial legislation that permit creditors to take court proceedings to challenge transactions as preferences or transfers at under value where the circumstances warrant. The Companies' Creditors Arrangement Act (CCAA) and the Bankruptcy and Insolvency Act do not apply to municipalities, banks, authorised foreign banks, railway or telegraph companies, insurance companies and companies to which the Trust and Loan Companies Act applies. Each of these entities are governed by specific legislation.
The CCAA does not apply to a debtor company or affiliated debtor companies unless the total of claims against the debtor company or affiliated debtor companies exceeds C$5 million. Secured creditors may seize and dispose of the collateral subject to their security in a commercially reasonable manner without resorting to court proceedings. Claims of foreign creditors and claims of local creditors are treated the same.
6 Foreign exchange
What are the restrictions, controls, fees, taxes or other charges on foreign currency exchange?
Canada does not legislate restrictions, controls or fees on foreign currency exchange.
What are the restrictions, controls, fees and taxes on remittances of investment returns or payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions?
The Canadian Income Tax Act imposes withholding tax on enumerated types of payments to non-residents of Canada. Examples of such payments include management fees, interest (only in limited circumstances), rents, royalties and dividends. In 2012, the default rate of withholding tax is 25 per cent. Income tax treaties between Canada and the jurisdiction to which the payment is being made may provide for an abatement or deletion of withholding tax.
Must project companies repatriate foreign earnings? If so, must they be converted to local currency and what further restrictions exist over their use?
Project companies are not legislatively required to repatriate foreign earnings and are not legislatively required to convert repatriated funds to local currency. An important note is that the tax benefit from delaying repatriation to Canada from a lower tax jurisdiction is negated in instances where the foreign accrual property income (FAPI) rules under the Canadian Income Tax Act apply. To simplify, the FAPI rules apply to passive forms of foreign income and result in the annual triggering of Canadian income tax even though those earnings have not yet been repatriated.
9 Offshore and foreign currency accounts
May project companies establish and maintain foreign currency accounts in other jurisdictions and locally?
There are no restrictions on the ability of Canadian entities to open and maintain bank accounts in foreign jurisdictions, subject of course to the legal requirements of such foreign jurisdictions. There are also no restrictions on the ability of Canadian entities to open and maintain bank accounts in Canada, subject to 'know your client' requirements established by the relevant deposit-taking institutions to ensure compliance with Canadian federal anti-money laundering and anti-terrorism legislation.
10 Foreign investment and ownership restrictions
What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?
Foreign investments in Canada are subject to the federal Investment Canada Act together with various federal and provincial sectorspecific restrictions. The Competition Act may apply to a merger, whether or not foreign entities are involved. Canada is a party to various multilateral and bilateral treaties, including the World Trade Organization and the North America Free Trade Agreement (NAFTA), pursuant to which it has agreed to fair and equitable treatment of foreign investors of member countries.
If a non-Canadian acquires control of an existing Canadian business, the investor must file an application for review or notification under the Investment Canada Act. The Investment Review Division of Industry Canada (Investment Canada) administers this legislation under the direction of the minister of industry. Investments by non- Canadians to acquire control of a Canadian business are notifiable unless the applicable financial thresholds for review are exceeded or the transaction fits within an exemption. Notification consists of completing a form that must be filed within 30 days after closing, setting out certain basic information about the investor and the Canadian business being acquired. An investor that establishes a new Canadian business is also subject to a similar notification requirement.
Review applications are more onerous and significant since, for all practical purposes, the transaction may not close unless the minister determines that the investment is of net benefit to Canada. There is a 45-day waiting period for reviews, which may be extended by an additional 30 days by Investment Canada. While it is exceptional for the minister to block an investment outright, in many instances the minister's approval is conditional on the investor making legally binding commitments or undertakings such as capital or research and development investments in Canada, maintaining Canadian employment and involving Canadians in the senior management of the acquired business.
For non-WTO investors, the threshold for review is C$5 million for direct investments and indirect investments where the asset value of the Canadian business being acquired exceeds 50 per cent of the asset value of the global transaction; otherwise the threshold for review is C$50 million for indirect investments. These limits also apply to WTO investors where the Canadian business engages in a cultural business. Otherwise, for WTO investors, indirect acquisitions are not reviewable (due to Canada's treaty obligations) and the threshold for direct investments is C$312 million (in 2011).
Under the Investment Canada Act, the minister may also initiate a review of an investment by a non-Canadian where the minister has reasonable grounds to believe the investment could be injurious to national security. Such a review is possible for foreign investments constituting less than an acquisition of control and regardless of financial thresholds. These provisions apply to a non-Canadian that acquires an interest in or establishes a Canadian business or, in certain circumstances, an entity carrying on all or part of its operations in Canada. The minister must send a notice to the investor that a review may be ordered within the prescribed time periods, and, in the event the notice is given prior to implementation, the investor may not implement the investment until it has received notice that no order for review will be made, notice indicating no further action will be taken, or a copy of an order authorising the investment to be implemented. In the event a review is ordered, the governor in council may direct the non-Canadian not to implement the investment, authorise the investment (with such undertakings and on such terms and conditions as may be ordered), or in the event the investment has been implemented prior to receiving notice from the minister, order the non-Canadian to divest itself of control of the Canadian business or of its investment in the entity.
The acquisition by a domestic or foreign entity of direct or indirect control over, or a significant interest in, a business may be challenged under the Competition Act by the commissioner of competition, the head of the federal Competition Bureau, if the acquisition lessens or prevents, or is likely to lessen or prevent, competition substantially. The commissioner brings such challenges to the Competition Tribunal, an adjudicative body.
Subject to certain exemptions, transactions that meet prescribed thresholds for the size of the parties and their affiliates (combined C$400 million of either assets in Canada, or annual gross revenues in, from or into Canada) and size of the target (the test varies according to structure of the transaction; for asset acquisitions it is C$73 million of either assets or annual gross revenues in or from Canada) must be notified to the Competition Bureau. If notifiable, a waiting period of 30 days must be observed before the transaction may complete, unless the commissioner has issued a supplementary information request, in which case the waiting period is extended to 30 days after the day on which the information required to be supplied pursuant to such request has been received by the commissioner. The parties to a transaction notifiable under the Competition Act may not complete the transaction prior to the expiry of the waiting period(s) unless the commissioner issues an advance ruling certificate or waives the filing or waiting requirement.
If the transaction involves a 'federal transportation undertaking' and the thresholds for pre-notification under the Competition Act apply, the transaction must also be pre-notified under the Canada Transportation Act to the minister of transport. In that case, there may be a separate review process triggered that focuses on 'the public interest as it relates to national transportation', which must be concluded before the acquisition can be completed.
There are a number of sector-specific regulatory regimes in Canada, some of which impose restrictions on foreign ownership and involvement. Notable examples include a 25 per cent cap on foreign ownership of voting equity in domestic air carriers and a requirement that the domestic air carrier be controlled in fact by Canadians; requirements under the Telecommunications Act and the Radiocommunication Act that all telecommunications carriers be Canadian-owned and controlled (meaning non-Canadians may not hold more than 20 per cent of the voting shares at the operating company level and 33.3 per cent at the holding company level); and the Non-Resident Ownership Policy, which requires Canadian ownership and control of uranium mines located in Canada.
Fees and taxes
Foreign investors into Canada should note that Canadian corporations with non-resident shareholders are subject to thin capitalisation rules, which limits a Canadian corporation's ability for Canadian income tax purposes to deduct interest the Canadian corporation pays on loans from its non-resident shareholders.
Non-residents of Canada must account for Canadian income tax on the disposition of taxable Canadian property. Common forms of taxable Canadian property are real property in Canada and shares of a Canadian corporation not listed on a designated stock exchange. A number of income tax treaties provide for an abatement or deletion of Canadian income tax on the disposition of taxable Canadian property.
11 Documentation formalities
Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?
In Quebec, certain types of security must be executed before a notary. Elsewhere in Canada, there are no peculiar or unusual legal formalities affecting document preparation or execution.
12 Government approvals
What government approvals are required for typical project finance transactions? What fees and other charges apply?
Government approvals are not typically required for project finance transactions unless the project involves or pertains to property or assets owned or controlled by a provincial or federal government, such as highways, hospitals and other public infrastructure. In such cases, the approval of or consent to the project would be required from the relevant provincial or federal government authority with jurisdiction over such property or assets. For example, in the case of the construction of a public hospital, consent of the applicable provincial ministry of health would be required.
13 Foreign insurance
What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?
Insurance is a matter that is under both federal and provincial legislative jurisdictions. For the sake of brevity, only the federal Insurance Companies Act is discussed.
Under the Insurance Companies Act (Canada) (the Act), a foreign entity cannot insure a risk in Canada unless it is authorised by an order made under subsection 574(1) of the Act. Whether a risk is insured in Canada depends on the criteria discussed in OSFI Advisory 2007-01 'Insurance in Canada of Risks'. Section 574 of the Act states that on application by a foreign entity the superintendent may, with the approval of the minister but, subject to the other provisions of the Act, make an order approving the insurance in Canada of risks by a foreign entity. However, the superintendent cannot make an order in respect of a foreign entity until it has been shown to the satisfaction of the superintendent that all relevant requirements of the Act have been complied with and that the foreign entity has:
- vested in trust assets having a prescribed value;
- appointed an actuary and an auditor; and
- established its chief agency.
Moreover, every property and casualty insurance company (foreign or domestic) must, in respect of insuring in Canada of risks that fall within a class of insurance, maintain assets in Canada having a value equal or greater than that prescribed under the Act and the regulations made thereunder.
Companies incorporated or continued under the Act may obtain reinsurance. However, when such companies place business with unauthorised reinsurers, they must maintain their own reserves for the ceded business, except where assets are posted in Canada. Reinsurance on an assumption basis is restricted by the Act, which requires approval from the minister or superintendent for such transactions.
Federal and provincial excise taxes may apply to many types of insurance contracts. Depending on the jurisdiction of the insured or the risk, such taxes may be significant. Reinsurance is exempt from federal excise taxes.
14 Foreign employee restrictions
What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?
Foreign nationals do not have the right to conduct business activities in Canada unless properly authorised. There are specific requirements for conducting business activities in Canada that, if not complied with, can lead to adverse consequences for the individuals or their employers.
Unless a foreign national can fall under an exemption, he or she must first obtain a temporary resident visa for conducting business activities prior to coming to Canada. The processing time for a visa can be several months, especially if there are additional requirements such as the need to conduct an immigration medical examination.
By contrast, a visa-exempt foreign national can apply to enter Canada at a port of entry, that is, a Canadian international airport or land border crossing.
Foreign nationals must, unless exempted, obtain work permits to conduct business activities in Canada. Note that the duration of the business activities is generally not a factor, so even if a foreign national will be conducting business activities in Canada for a very short period of time, a work permit may be required. If a foreign national is found to have worked in Canada without being properly authorised, he or she may be barred from obtaining a work permit for six months or considered inadmissible to Canada for a period of two years. Also, the business for whom the foreign national is conducting the business activities can be liable to a fine of up to C$50,000. As of 1 April 2011 new immigration regulations came into effect. Employers are now subject to serious penalties for not honouring the terms of job offers, labour market opinions or work permits. An employer that fails to do what they have agreed to do for the employee can be banned for two years from being eligible to obtain a labour market opinion or a work permit (employing a non- Canadian worker). Also the employer can be placed on a 'blacklist' of offending employers on the website of Citizenship and Immigration Canada.
Under NAFTA, management and supervisory personnel and financial services personnel (insurers, bankers or investment brokers) engaging in a commercial transaction for an enterprise located in the United States or Mexico are permitted to carry out such business activities as business visitors. 'Commercial transaction' means discussions and negotiations respecting the sale, purchase, marketing, distribution, advertisement, procurement, transmission, transportation or packaging of goods or services.
If foreign nationals needing to work on a finance project do not qualify under a work permit-exempt category, they will need to obtain work permits. There are different work permit categories.
The particular category will dictate the requirements and procedures for applying, the location at which the application can be made and the processing time.
The following work permit categories are the most relevant in a project finance context:
- NAFTA professional;
- intra-company transferee;
- senior manager or executive;
- specialised knowledge worker; and
15 Equipment import restrictions
What restrictions exist on the importation of project equipment?
There are no project finance-specific restrictions or limitations on the importation of equipment, which is subject to the usual import and export restrictions administered by the Canada Border Services Agency.
16 Nationalisation and expropriation
What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected?
There is federal and provincial legislation pertaining to the exercise of expropriatory rights of the Crown by a provincial or federal government that details the manner of, and the compensation to be paid for, an expropriation by such governments. These powers are seldom used by such governments (the exception being in the case of land assembly needed to build public transport routes or infrastructure projects). There are no specially protected forms of investment under such expropriatory legislation.
17 Fiscal treatment of foreign investment
What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?
Canada does not offer tax incentives preferentially to foreign investors or creditors. Canada offers tax rates that are generally favourable compared with other developed nations. For 2012 general active business income earned in a Canadian corporation owned by nonresidents of Canada is subject to a federal income tax rate of 1.5 per cent and depending on which provincial income tax rate applies, the combined federal and provincial income tax rate is approximately 28 per cent.
Since 2008, as a result of income tax treaty negotiations between Canada and the United States, the imposition of Canadian withholding tax on payments of interest to non-residents only exists in very limited circumstances.
Canada does not have a stamp duty.
18 Government authorities
What are the relevant government agencies or departments with authority over projects in the typical project sectors? What is the nature and extent of their authority? What is the history of state ownership in these sectors?
Canada is a constitutional monarchy with a federal government, 10 provinces and three territories. The provinces generally have jurisdiction over natural resources, including oil and gas and mining (subject to the federal government's jurisdiction over uranium production) and water resources. The provinces enact legislation that governs and regulates through provincial ministries or agencies the acquisition of title to minerals, oil and gas and water use and a permits process for the development of same. The federal government has jurisdiction over fisheries, navigable waters, ports, telecommunications, and international power transmission.
Most provinces and territories have government-owned or controlled hydroelectric power producers but encourage privately developed power generation and transmission development.
19 International arbitration
How are international arbitration contractual provisions and awards recognised by local courts? Is the jurisdiction a member of the ICSID Convention or other prominent dispute resolution conventions? Are any types of disputes not arbitrable? Are any types of disputes subject to automatic domestic arbitration?
Because the power to legislate with respect to specific subject matters is divided constitutionally, it is necessary to determine whether the federal government or a specific provincial or territorial government has authority over the subject matter of the particular dispute and to review the relevant legislation in the enforcing jurisdiction. General principles, however, can be stated, particularly with respect to the common law jurisdictions, which include all Canadian jurisdictions other than Quebec.
In general, Canadian courts look with favour on international arbitration contractual provisions and will recognise and enforce resulting awards provided that, among other things:
- the arbitration provision has been clearly drafted;
- the agreement in which it is contained is valid, operative (ie, not rescinded or terminated by operation of law) and capable of performance and none of the generally accepted reasons for vitiating a contract (eg, fraud, duress, mistake) is present;
- the tribunal had jurisdiction over the subject matter of the arbitration pursuant to the contractual provision, by other attornment of the parties, or by operation of law. Further, some matters are considered to be the prerogative of the courts or may be statutorily incapable of being arbitrated pursuant to the law of the enforcing jurisdiction;
- the parties to the proceeding were given proper notice and an opportunity to know the case against them and to be heard;
- the award is a final one, all appeal periods have either expired or the appeals were unsuccessful and the order has not been set aside or suspended;
- the award is not contrary to public policy; and
- the award is for a certain sum, although Canadian courts are becoming more flexible about enforcing non-monetary orders in certain circumstances.
Canada signed the ICSID Convention on 15 December 2006, but has not yet deposited its instrument of ratification and the Convention has not yet entered into force.
Canada acceded to the New York Convention on 12 May 1986, and later that year adopted the UNCITRAL Model Law. Canada declared that it would apply the Convention only to disputes arising out of commercial relationships. While in 1986 all of the provincial governments enacted legislation for the recognition and enforcement of foreign arbitral awards under the New York Convention, that Convention is no longer part of the law of the province of Ontario, which relies on the Model Law with respect to the recognition and enforcement of foreign arbitral awards.
Canada has also acceded to the North American Free Trade Agreement, which contains dispute-resolution provisions. It is to be noted that in October 2011, the Ontario Court of Appeal determined that while there is no appeal from an international commercial arbitral award, under the UNCITRAL Model Law the court from which enforcement is sought may consider whether or not the arbitrator exceeded its jurisdiction and that the standard of review of the arbitrator's decision respecting jurisdiction is correctness: see Mexico v Cargill Incorporated, 2011 ONCA 622 (Can- LII). Leave to appeal to the Supreme Court of Canada was refused:
2012 CanLII 25259 (SCC). The Ontario Court of Appeal cautioned, however, against broadening the inquiry beyond a true question of jurisdiction into one that touches more generally on the merits of the arbitrator's decision.
20 Applicable law
Which jurisdiction's law typically governs project agreements? Which jurisdiction's law typically governs financing agreements? Which matters are governed by domestic law?
Typically the law of the province where the project is located is chosen as the law governing not only the project but also the finance documents. Nonetheless, in a certain number of cases, the finance documents will be subject to the law of the jurisdiction where the lenders are located. For Canadian projects, this is typically Ontario, New York or London.
As discussed above, the courts in Canada retain prerogative over matters of public policy.
21 Jurisdiction and waiver of immunity
Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable?
Yes, generally speaking, a submission to a foreign jurisdiction and a waiver of immunity are effective and enforceable, but note that the waiver must be clear and unequivocal.
22 Title to natural resources
Who has title to natural resources? What rights may private parties acquire to these resources and what obligations does the holder have? May foreign parties acquire such rights?
Title to natural resources can be most often acquired from the provinces or territories and more rarely from private owners, aboriginals or the federal government. Provinces and territories generally hold title to minerals, oil and gas and water on Crown-owned lands and have enacted legislation that governs and regulates the acquisition of title and regulates the acquisition of mineral rights, oil and gas rights and water rights. Private parties may acquire such rights from the government on government-owned lands in respect of which title to such rights have not been previously granted. In the case of mining, a prospecting licence is required in certain of the provincial and territorial jurisdictions for individuals and companies before they can engage in the exploration for minerals. In most jurisdictions a prospecting licence is required to actually acquire mineral rights. Once title is recorded, the mineral claims give the holder the exclusive right to explore the area located and grants the exclusive right to apply for a mining lease, which provides the lessee with the right to develop any mineral discoveries. Leases are issued for a term of between 10 and 30 years with several or perpetual renewals possible.
Oil and gas rights are obtained through a competitive bidding process in which the province awards oil and natural gas rights to successful bidders through an oil and gas licence or lease for varying terms of years. The oil and gas lease provides the holder with the right to production of oil and gas resources. There are no restrictions on the acquisition of natural resource rights that are unique to foreign parties other than:
- some provincial jurisdictions require a foreign party to use a locally incorporated corporation or to register the foreign party under local corporate law requirements in order to obtain a prospecting licence;
- federal policy on uranium production requires a 51 per cent Canadian-resident ownership of individual uranium mining properties subject to certain exceptions; and
- most Canadian provinces and territories have adopted statutes, regulations or policies that prohibit bulk water removal for the purposes of export from provincial and territorial waters and the federal government has restrictions in place through the International Boundary Waters Treaty Act and its regulations, prohibiting the bulk removal of water from the Canadian portion of boundary waters, like the Great Lakes, with a few exceptions.
Title to natural resources may be affected by both proven and potential aboriginal title to the lands where or near where the natural resources are located. This is particularly the case in jurisdictions where treaties have not been entered into with aboriginal people, such as British Columbia and certain of the territories. The courts have imposed a duty on Canadian governments to notify and consult aboriginal peoples with respect to possible infringement of their aboriginal title or aboriginal rights in connection with specific projects before such projects are permitted. In some cases, the consent of the aboriginal peoples to a project will be required. In other cases, compensation may be required. This generally takes the form of an impact and benefits agreement negotiated directly between the aboriginal peoples and the private party wishing to proceed with a project.
23 Royalties on the extraction of natural resources
What royalties and taxes are payable on the extraction of natural resources, and are they revenue- or profit-based?
Companies carrying on the business of extracting natural resources in Canada are subject to federal and provincial or territorial income taxes and provincial or territorial mining taxes or royalties. Additionally, such operations are subject to payroll levies and health or education taxes in several provinces or territories, workers' compensation levies in all provinces and territories, federal valueadded taxes (goods and services tax, GST), provincial value-added taxes or harmonised sales taxes (HST) in certain provinces and territories, and excise and sales taxes in certain other provinces. Federal and provincial income taxes are payable on a taxpayer's 'taxable income' calculated in accordance with the relevant taxing statute. For 2012 the federal tax rate applicable to income from extracting natural resources is 15 per cent. The provincial and territorial income tax rates vary from a low of 10 per cent (British Columbia and Alberta) to a high of 16 per cent (Nova Scotia). All provinces and territories that have significant mining activities impose mining taxes, mining royalties or mineral land taxes on mining activities and the tax and royalty rates vary among the provinces and territories.
24 Export of natural resources
What restrictions, fees or taxes exist on the export of natural resources?
Except as indicated otherwise herein, there are no restrictions, fees or taxes on the export of natural resources in addition to the federal and provincial income taxes payable on taxable income derived from profits on the sale of same.
The export of uranium is controlled and regulated by the Canadian Nuclear Safety Commission (CNSC), which oversees Canada's nuclear non-proliferation policy. Under the Nuclear Safety and Control Act and its regulations, Canadian exporters are required to obtain and comply with CNSC licences controlling the international transfer of nuclear and nuclear-related items. Licensees must respect Canada's nuclear non-proliferation commitments. Through the licensing process, CNSC takes steps to ensure that nuclear imports and exports are consistent with Canada's nuclear non-proliferation policy.
Canada imposes an export duty on softwood lumber exported to the United States. British Columbia also imposes a charge on logs exported from the province that have been harvested from public land in British Columbia or from private land in British Columbia that was granted from the Crown (i) on or after 12 March 1906, or (ii) before 12 March 1906 in a tree farm licence area.
25 Environmental, health and safety laws
What laws or regulations apply to typical project sectors? What regulatory bodies administer those laws?
In Canada, both the federal and provincial governments have jurisdiction to regulate environmental issues, whereas occupational health and safety legislation is a matter of provincial jurisdiction unless the subject matter of the undertaking in question falls within federal jurisdiction. Canada's environmental legislation is broadreaching. In recent years, at both the federal and provincial levels, governments have enacted greater liability for directors and officers of corporations in relation to environmental matters. Additionally, in some jurisdictions legislative changes have made it easier for government ministries to share information that may lead to prosecutions for environmental offences. Several provinces have introduced an administrative penalties regime with the result that companies may simultaneously face an administrative penalty (for which there is no due diligence defence) and a quasi-criminal charge in respect of the same environmental event. Fines for environmental offences are also on the increase.
Brownfields legislation has been introduced in some jurisdictions in an effort to encourage the clean-up and development of contaminated properties. This legislation offers some limited protection for purchasers of these properties where the purchasers clean up the properties or manage them in an acceptable fashion. However, Canadian brownfields legislation has lagged behind the United States in its development. As a result, there is still significant uncertainty with respect to liabilities arising from brownfields developments. Some of the more significant federal and provincial laws dealing with environmental matters are as follows:
- Canada: Canada Shipping Act 2001, Canadian Environmental Assessment Act, Canadian Environmental Protection Act 1999, Criminal Code, Fisheries Act, Hazardous Products Act, Species at Risk Act and Transportation of Dangerous Goods Act;
- British Columbia: Environmental Assessment Act 2002, Environmental Management Act 2003, Environment and Land Use Act, Fish Protection Act, Water Act, Water Protection Act and Wildlife Act; and
- Ontario: Clean Water Act, Environmental Assessment Act, Environmental Bill of Rights, Environmental Protection Act, Ontario Water Resources Act, Pesticides Act and Safe Drinking Water Act.
At the provincial and territorial level, the minister of the environment (or comparable minister) administers the applicable environmental laws within the province or territory in question.
At the federal level, the minister of the environment is responsible for the administration of some of the environmental legislation, including the Canadian Environmental Protection Act 1999, the Canadian Environmental Assessment Act and the Species at Risk Act. Responsibility for other federal legislation with environmental components rests with several other ministries. For example.
administration of the Fisheries Act is shared between the minister of the environment and the minister of fisheries and oceans, who also administers the Canada Shipping Act 2001. Responsibility for the Criminal Code rests with the minister of justice, who is also the attorney-general of Canada. The minister of health oversees the Hazardous Products Act and the Transportation of Dangerous Goods Act is administered by the minister of transport, infrastructure and communities. Recently, the federal government introduced amendments to several environmental statutes. Among other measures, the proposed legislation seeks to enact the Canadian Environmental Assessment Act 2012, which will establish a new federal environmental assessment regime intended to streamline the environmental review process for major economic projects and, in particular, to facilitate the development of new natural resource projects.
26 Project companies
What are the principal business structures of project companies? What are the principal sources of financing available to project companies?
A single-purpose bankruptcy remote entity is usually incorporated under the relevant provincial business corporation act, although partnership and limited partnership vehicles are frequently utilised to benefit from favourable taxation consequences. Financing for such entities is by way of bank debt, and the public bond markets in Europe, the United States and Canada or some combination thereof.
27 Public-private partnership legislation
Has PPP-enabling legislation been enacted and, if so, at what level of government and is the legislation industry-specific?
There is no general legislation authorising PPPs generally but rather project-specific authorisations issued by the relevant government authority.
28 PPP – limitations
What, if any, are the practical and legal limitations on PPP transactions?
The primary challenge to PPP transactions is sourcing the long-term debt necessary to finance the projects.
29 PPP – transactions
What have been the most significant PPP transactions completed to date in your jurisdiction?
Significant PPP projects have included:
- the Pan American Games stadiums and velodrome project – to build two stadiums and a velodrome facility for the 2015 Pan American Games;
- Windsor Essex Parkway – this C$1.4 billion road project represents the most significant highway investment in Ontario;
- Northeast Anthony Henday Drive – a highway (ring road) project in Edmonton, Alberta;
- the Billy Bishop Island Airport pedestrian tunnel;
- the Communications Security Establishment, Canada – this C$1.1 billion project involves the construction of a new centre for Canada's national foreign intelligence and cryptologic agency; and
- the Chief Peguis trail extension – C$108.5 million road in Winnipeg, Manitoba.
Update and trends
Sourcing long-term capital requirements continues to present challenges in light of the continuing impact of the global recession on major international financial institutions.
Originally published in Getting the Deal Through
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.