Except where otherwise noted, this paper is current as of November 2013 and provides preliminary information on Canadian and Alberta legal matters to assist you in establishing a business in Alberta and provides general guidance only. This paper is a general guide and not an exhaustive analysis of provisions of Canadian or Alberta law. We recommend that you contact a corporate/commercial lawyer with Davis LLP's Calgary or Edmonton offices for specific advice before proceeding with your investment in Canada. Davis LLP has substantial presence and capabilities to help you successfully launch your business transaction in Canada.
B. GOVERNMENT AND LEGAL SYSTEM
Before it became a self-governing nation in 1867, Canada was primarily settled by English and French settlers and the legacy of those two "founding groups" is still felt today in many areas. For example, Canada's two official languages are English and French and Canada has inherited two systems of law, civil law from the French and common law from the English. The result is a civil law based legal system in Quebec and a common law system in the rest of the country.
Canada is a constitutional monarchy and a parliamentary democracy with a federal system of government whereby governmental powers and legislative authority are divided between the national (federal) level and ten provincial and three territorial governments. The federal government deals with matters that affect all of Canada, such as criminal law, trade between provinces, telecommunications, bankruptcy and insolvency, banking and currency, intellectual property, fisheries, immigration and extradition, and national defence. The provinces and territories make laws in such areas as education, property, and health services. Certain aspects of provincial powers are delegated by provinces and territories to municipal governments, which enact their own bylaws as allowed by that delegation.
Generally speaking, compared to the relationship of the states to the federal government in the United States, the provinces have weaker powers vis-à-vis the Canadian federal government. For example, as mentioned above, criminal law in Canada is a federal area and, unlike American states, each province does not make its own criminal law. In Canada, "residual powers" (i.e., all powers not specified in the Canadian constitution), reside with the federal government. Despite this, in practice many federal powers have been assigned to provincial jurisdiction, such that Canada today is a highly decentralized federation. Further decentralization of functions has been implemented to accommodate provincial aspirations, such as those of Quebec. Each of Canada's two levels of government is supreme within its particular area of constitutional jurisdiction, subject to limits created by the Canadian Charter of Rights and Freedoms.
Canada's Parliament consists of the monarch (Queen Elizabeth II, as represented by the Governor General) and a legislature composed of an elected House of Commons and an appointed Senate. The Governor General appoints Canadians, who are recommended by the Prime Minister, to the Senate according to a formula that distributes the seats among the provinces. In practice, legislative power rests with the political party that has the majority of seats in the House of Commons, which elects its members, the members of Parliament, from 308 constituencies (geographic areas) for a period not to exceed five years.
Each province has a lieutenant governor (the monarch's representative in the province), a premier and an elected legislative chamber. Provincial governments operate under a parliamentary system similar in nature to that of the federal government, with the premier of the province chosen in the same manner as the Canadian prime minister is chosen federally. Lieutenant governors, like the governor general, have broad but essentially symbolic powers that are rarely used.
C. TYPES OF BUSINESS ORGANIZATION
A wide variety of legal arrangements may be used to carry on business activity in Canada. Commonly used arrangements are: corporations; partnerships; limited partnerships, trusts, joint ventures, unlimited liability corporations and sole proprietorships. The selection of the appropriate form of business organization will depend in each case upon the nature of the activity to be conducted, the identity and priority of the investor(s), the method of financing, income tax planning and potential liabilities of the business and the principals engaged in the business.
As discussed in more detail below in Part D (Market Entry Into Canada), one of the first issues faced by a foreign entity contemplating carrying on business in Canada is whether to conduct business directly in Canada as a Canadian branch of its principal 'foreign' business or to create a separate Canadian entity to carry on the business. Canadian and foreign tax treatment, liability and availability of government incentive programs will generally dictate whether to carry on business through a 'branch' or a 'direct' relationship.
The most common method of carrying on business in Canada and in Alberta is through a corporation. Corporations offer limited liability to their shareholders and have the powers of a natural person, unless limited by the Articles of Incorporation.
If an investor decides to use a corporation to carry on its business in Canada, it is necessary to decide on the jurisdiction of incorporation because corporations can be formed under federal law or the laws of any of the ten provinces or three territories of Canada. While federal corporate law and the various provincial laws are similar in many respects, there are some important differences.
(a) Incorporation in Alberta
A corporation may be created pursuant to the Alberta Business Corporations Act (the "ABCA"), RSA 2000, c B-9, by filing articles of incorporation with the Alberta Registrar of Corporations (commonly called Corporate Registry). The articles of incorporation specify the name of the corporation, the share-capital structure, the share transferability, the number of directors and restrictions, if any, on the type of business the corporation may carry on. A corporation may be incorporated with limited liability for its shareholders or with unlimited liability for its shareholders (the latter type of corporation must be designated by 'ULC' or 'Unlimited Liability Corporation' in its corporate name). The requirements for incorporation of an Alberta Corporation under the ABCA are:
- selection of a name through a NUANS search report that screens the names of Alberta registered corporations and partnerships, federal corporations (irrespective of where registered) and registered Trade Marks and registered Alberta business names. No approval is required of the proposed name by the Alberta Corporate Registry, but the Registrar has the right to prohibit certain names, and to take steps to require a change of corporate name where a prior name is similar or identical to the name proposed or being used;
- filing of articles of incorporation, a Notice of Directors and a Notice of Registered Office. An Alberta corporation must specify in the articles the number of directors it will have, or a minimum number and a maximum number of directors. The minimum number can be one director. The Registered Office must be located in Alberta and cannot be a post office box number; and
- payment of the Registrar's incorporation filing fee of $250. In addition, the NUANS search and review fee and disbursements of approximately $100 plus legal fees and related disbursements are payable.
A corporation's internal organization and procedure are generally subject to the articles of incorporation and any bylaws the corporation may have adopted. Frequently, a bylaw exists which provides rules with respect to such matters as the calling of shareholders' and directors' meetings and the method of conducting business at those meetings.
Investors who are not Canadian citizens or permanent residents of Canada should be aware of those provisions of the ABCA concerning residency of directors. The ABCA requires at least one-quarter of the directors of a corporation incorporated in Alberta to be resident Canadians. A resident Canadian is an individual who is a Canadian citizen ordinarily resident in Canada, a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons or an individual who has been lawfully admitted to Canada for permanent residence.
It is also possible to carry on business in Alberta through a corporation incorporated in another jurisdiction, whether Canadian or foreign. Such a corporation is referred to as an extra-provincial corporation and is required to be registered with the Alberta Corporations Branch within 30 days of its commencing business in Alberta. Registration is achieved by filing certified copies of the corporation's constating documents, a statement of registration and a notice of attorney for service. A non-Alberta corporation carrying on business in Alberta must appoint an attorney to whom the corporation's notices and legal documents may be delivered or served. The attorney must be an individual who resides in Alberta, and is usually, but is not required to be, a lawyer.
If all or any part of the constating documents of the corporation are not in English, a verified translation may be required. Registration also requires that the name of the corporation does not conflict with the name of an existing Alberta or Federal corporation.
(b) Incorporation of a Federal Corporation
An investor may choose instead to incorporate a federal corporation under the Canada Business Corporations Act (the "CBCA"). The requirements for incorporation of a federal CBCA corporation are:
- selection of a name through a federal NUANS search report and approval by Industry Canada of the requested name;
- filing of articles of incorporation, a Notice of Directors and a Notice of Registered Office. A federal corporation must specify in the articles the number of directors it will have, or a minimum number and a maximum number of directors. The minimum number can be one director. A federal corporation must have a Registered Office located in the province of Canada specified in its articles of incorporation; and
- payment of Industry Canada's incorporation filing fee of $200. In addition, the NUANS search and review fee and disbursements of approximately $100, plus legal fees and related disbursements are payable. Additional legal fees and the registration fees of the individual province or territory where the CBCA corporation will carry on business should also be taken into account when choosing to incorporate a federal corporation.
Under the CBCA, 25% of directors of the federal corporation must be resident Canadians (or Canadian permanent residents), except when there are fewer than four directors, in which case at least one must be a resident Canadian.
A federal corporation may carry on business in Alberta (or other provinces), provided it extra-provincially registers in Alberta (or such other province).
(c) Other Considerations Relating to Choosing Whether to Incorporate Federally or Provincially
Some of the matters which should be taken into consideration in deciding where to incorporate Federally, Provincially or in a Territory are:
- the place in which the corporation intends to do business. If it intends to do business in more than one province or territory, and it wishes to use an established name, it may be desirable to incorporate federally so that the corporation will be entitled to carry on business using that name in every province or territory;
- the corporate name of a federal corporation will be accepted by the Alberta registrar (and all other provincial and territorial registrars in Canada) for the conduct of business. By comparison, an Alberta corporation's name may not be accepted in another province or territory if there is an existing conflict or perceived conflict between its name and that of an existing corporation in that other jurisdiction;
- the by-laws of a corporation generally deal with requirements relating to meetings and to notices of meetings. Most jurisdictions (including Alberta and federal) state that, unless the articles or the by-laws otherwise provide, the directors may meet anywhere;
- shareholders' meetings of a federal corporation must be held somewhere in Canada unless all shareholders agree otherwise. Under the ABCA, a meeting of shareholders of an Alberta corporation must take place in Alberta at the place designated in the bylaws or, in the absence of such provision, at the place within Alberta that the directors determine. In lieu of holding a physical meeting of the shareholders, a consent resolution of all shareholders is the usual substitute for both federal corporations and Alberta corporations if the number of shareholders makes it practical to obtain all signatures;
- requirements as to financial disclosure for public companies are very similar in Alberta and federally. Financial information pertaining to a private or non-reporting corporation is usually available to the directors, the shareholders and their personal representatives, but not to the general public. The board of a Canadian federal corporation or an Alberta corporation must approve the corporation's financial statements annually and present them to the shareholders. The financial statements of an Alberta corporation must be audited unless all shareholders (voting and non-voting) waive that requirement annually; and;
- generally there is no requirement to file a Canadian corporation's or an Alberta corporation's financial statements with a government body, except in the case of 'public' corporations. Federal corporations that are distributing corporations (i.e., they distribute their securities to the public) or that have gross revenues exceeding $15 million or assets exceeding $10 million must file their annual financial statements with the Director appointed under the CBCA or with the Chief Statistician of Canada. For purposes of revenue and asset tests, the revenues and assets of affiliates are included. A 'distributing' (public) Alberta corporation must publish financial statements in accordance with the Alberta Securities Act, unless an application is successfully made to the Alberta Securities Commission to dispense with publication of any prescribed financial statement.
2. Unlimited Liability Companies
Businesses coming to Canada from the United State have, in many instances, used unlimited liability companies (ULCs) as a vehicle for their activities in Canada because of historical favourable treatment afforded to ULCs as 'flow-through' entities under US tax law. An unlimited liability company differs from a limited corporation because shareholders retain some liability for obligations of the company. Recent changes to the Canada-United States Income Tax Convention have, however, eliminated in many cases the tax benefits associated with such entities and give rise to adverse tax consequences. Alberta, Nova Scotia and British Columbia have legislation which permits the formation of ULCs. There are no federal equivalents. Tax advice should be sought before adopting the use of a ULC for investment in Canada.
Partnerships in Alberta are governed by the Partnership Act, RSA 200, c P-3, although Common Law and equitable legal principles remain applicable to the extent they are not inconsistent with the Act. A partnership is defined in the Act as the relationship which subsists between persons carrying on business in common with a view to profit. 'Persons' includes corporations and 'business' includes every trade, occupation and profession.
(a) General Partnerships
The precise legal nature of a partnership is difficult to define. For example, the firm may sue or be sued in its own name, partnership property belongs to the partnership and not to the individual partners, and for income tax purposes, income is calculated as if the partnership were a separate entity. Other attributes suggest the partnership should be regarded as an aggregation of individuals; for example, no person can be an employee of a firm of which he, she or it is a member and a partnership can sue or be sued in the partnership name alone, but often in a prosecution or regulatory complaint one or more of the partners is also named in the charge or complaint.
The creation of a partnership does not depend on any type of filing or registration. The existence of a partnership is determined by examining the nature of the relationship between the persons who are carrying on business together. Partnerships that carry on trading, manufacturing, contracting or mining business are required by the Partnership Act to file a declaration of partnership with the Alberta Registrar of Corporations. Other businesses that are Partnerships may file a declaration of partnership, but usually do not do so.
Each Partner is both an agent of the partnership firm and of every other partner for the purpose of conducting the business of the partnership. As such, the acts of each partner bind the firm unless the partner has no authority to act for the firm in the particular matter and the person with whom the partner is dealing knows of his lack of authority or does not know and does not believe him to be a partner.
Each partner in the firm is jointly liable with other partners for the debts and obligations of the firm incurred while he is a partner. There is no method under the Act of limiting liability of a partner in a partnership, unless the Partnership is established and registered under the Act as a limited partnership or a limited liability partnership.
Generally, a partnership agreement governing the relationship between or among the partners will be an executed (written) document and will contain comprehensive agreements relating to the manner in which the partners deal with one another and with third parties in relation to the partnership business, but as noted above an agreement can be partly written and verbal, or entirely verbal.
A foreign corporation may wish to enter into a partnership with another person or corporation. The result of setting up such a partnership is that the income or loss of the business will be calculated at the partnership level as if the partnership were a separate person but the resulting net income or loss will then flow through to the partners and be taxable in their hands in accordance with their capital interests in the partnership. Partnerships themselves are not taxable entities for the purpose of calculating Canadian tax obligations.
(b) Limited Partnerships
A limited partnership must have at least one general partner who runs the business and is liable for its debts and obligations. A general partner must be a corporation or a natural person. All other partners may be "limited partners". A limited partner's liability is limited to:
- the differences, if any, between the actual amount of the limited partner's capital contribution and the amount stated in the certificate of limited partnership as having been made; and
- any unpaid contribution the limited partner agreed in the certificate of limited partnership to make in the future at the time and on the conditions, if any, set forth in the certificate of limited partnership in running the business.
Limited partners are not entitled to participate in the management of the limited partnership. Their function is to contribute capital in the form of cash or other property. The partners' share of profits and other management and operational matters are governed by a limited partnership agreement and the provisions of the Partnership Act.
Limited partnerships come into existence under the Partnership Act (Alberta) by filing with the Registrar of Corporations (Corporate Registry) a certificate of limited partnership. The certificate must be signed by all of the partners and contain information concerning the names of limited partners and other information about the limited partnership.
(c) Limited Liability Partnerships
Certain professional partnerships (referred to under the Partnership Act as "eligible professions"), such as lawyers and chartered accountants, can establish themselves as limited liability partnerships to reduce their individual personal exposure to professional liability claims if those partners were not responsible for the error that gave rise to the claim.
Limited liability partnerships come into existence under the Partnership Act (Alberta) by filing the appropriate registration statement with the Registrar. Under a limited liability partnership, individual partners of those eligible professions retain liability for their own acts and omissions and there is no general partner, as there is in a limited partnership. A limited partnership is expressly prohibited from registering as a limited liability partnership.
4. Sole Proprietorships
Sole proprietorships are generally only used where an individual desires to carry on business without using one of the more formal business entities. The owner of such a business has the sole responsibility for carrying on the business and is personally liable for its debts and obligations. As a sole proprietor, however, the individual is allowed to claim business losses against his or her personal income. In the beginning stages of a business, it may be preferable to incorporation, provided the retention of personal liability is not an undue risk.
5. Joint Ventures
In Canada, there is no distinct legal entity known as a "joint venture". The term "joint venture" is generally used to describe either an unincorporated business association between individuals or corporations or a jointly owned and controlled corporation. Unincorporated joint ventures are often used for mining, oil and gas, and real estate development projects.
(a) Unincorporated Joint Ventures
As mentioned above, the term "joint venture" is often used to refer to a business relationship similar to a partnership that is treated differently for tax purposes because of specific characteristics of the business being carried on. A joint venture agreement should be entered into by the co-venturers to show that the business association is a joint venture rather than a partnership. Each co-venturer retains a co-ownership of the assets that it contributes to the joint venture. A significant difference in tax treatment between a partnership and a joint venture is that co-venturers are taxed as individuals, not jointly as is the case with partners in a partnership. This permits flexibility to implement individual tax plans, which is not available in the partnership structure. However, similar to partnerships, the joint venture agreement normally sets out the co-venturers' rights and restrictions, governs the sharing of profits and losses, and co or individual ownership of the assets and liabilities. Because a joint venture is not a distinct legal entity, it cannot sue or be sued; such rights and liabilities attach to the individuals or entities involved in the joint venture.
The main characteristic of a joint venture, as contrasted to a partnership, is that each joint venture member owns a specified undivided interest in the joint venture property.
(b) Incorporated Joint Ventures
Often a corporation that is jointly owned and controlled is referred to as a "joint venture" with the rights of shareholders being governed by a shareholders' agreement that sets out each shareholder's rights and obligations. For example, each shareholder may be given the right to veto major transactions by the joint venture corporation. Other rights, such as the ability to appoint a certain number of directors to the board, are usually set out in the shareholders' agreement. This type of joint venture does not permit individual shareholders to calculate taxes as individuals as in the case with unincorporated joint ventures. Instead, tax is calculated and paid by the 'joint venture' corporation itself.
Some commercial activity is carried on through income trusts and other forms of trusts whereby a trust holds assets that are income producing and income is passed on to unit holders. Income trusts can generate a cash flow for investors and are often used as vehicles for real estate and natural resource investments. The tax treatment of income trusts has undergone significant change under Canadian tax law in recent years and a trust structure as a vehicle for investment in Canada requires knowledgeable tax structuring advice.
D. MARKET ENTRY INTO CANADA
1. Acquiring a New Business
Individual circumstances will determine whether a foreign investor should start a new business in Canada or acquire an existing business. For example, it may be more appropriate in the energy and forestry industry to acquire an existing operation if the target company owns licences and permits that are otherwise difficult to obtain. In other circumstances, however, it may be more appropriate to start a new operation.
2. Subsidiary or Branch Office
A related question is whether it is preferable to start a Canadian operation through a subsidiary or a branch office of a foreign corporation. There are tax, liability and operational factors which influence the choice of a 'branch' or 'Canadian subsidiary' operation. Generally, branch offices are only used by foreign corporations when their activities in Canada are not extensive and, in practice, most foreign investors use a subsidiary corporation.
Subsidiaries and branch operations must meet the same regulatory obligations in Canada and, specifically, all necessary business licences, registrations and consents relating to the business activity must be obtained from any province or territory in which the subsidiary or branch operation carries on business.
One of the advantages of using a branch office over a subsidiary, depending on the jurisdiction of the foreign investor, is that it will be easier for the foreign corporation to claim losses incurred by the branch office than it would be in the case of a subsidiary. This is one component of the tax treatment of branch operations as compared to subsidiary corporations dealt with in more detail in Part H - Tax Considerations.
Conversely, advantages of using a subsidiary instead of a branch operation include: (i) the limited liability of a subsidiary, which insulates the parent from the subsidiary liabilities; (ii) the potential for greater market impact; and (iii) the potential for obtaining regulatory approvals and financing faster and with fewer barriers.
Other advantages of a subsidiary are that a foreign parent corporation using a branch office could be subject to a variety of Canadian legislation to which it would not be subject if the corporation used a subsidiary. Such legislation includes Canadian tax legislation that requires foreign corporations doing business through a branch to open their books and accounting records to a Canadian tax audit. Other legislation that governs the business activities of a branch office, such as consumer protection legislation and employment standards legislation, could also directly impact the foreign parent corporation.
Whether a foreign entity conducts business in Canada through a branch office or by creating a Canadian subsidiary, the investment may be subject to the foreign investment notification or review requirements of the Investment Canada Act (Canada) (discussed in Part G-Regulation of Foreign Investment ).
One common method of starting a business in Canada is through franchising. Franchising generally refers to a business-format system under which an investor is permitted to market a specified product or service in a particular location using a well-known trade-mark. Initial training and ongoing support are normally provided by the franchisor. There are many advantages for a new investor to purchase a franchise. For example, the investor will benefit from established goodwill (under trade-mark), a standard product and broad advertising. There are also many advantages for a franchisor to market and sell products through franchisees. The parties will enter into a franchise agreement which sets out the relationship between the franchisor and the franchisee, including matters such as what assistance the franchisor will provide to the franchisee and where and how the products or services may be marketed.
Another popular method of carrying on business is through licensing. Licences are similar to but are often not as complex as franchises and may include the right to use trade-marks, technology, know-how and perhaps patents. As is the case with franchises, there may be numerous advantages to both parties to a licence agreement. The party granting the licence may obtain relatively inexpensive market access to a geographical area, with the party obtaining the licence gaining access to proven technology and products.
Whatever type of business is commenced or acquired, the investor will usually require outside financing in addition to its own equity both to establish the business and to operate it. Tax considerations will often determine to what extent different types of financing should be used.
Money may be borrowed from many sources. All of the large Canadian banks have extensive branch systems in Alberta and many mid-sized, small and foreign banks are represented in Calgary and Edmonton. Alberta Treasury Branches (ATB Financial) is a significant lender to businesses and individuals in Alberta. It is a crown corporation owned by the Government of Alberta. There are also many other lending institutions such as credit unions and trust companies. Government agencies such as the federal Business Development Bank of Canada and programmes such as the Canada Small Business Financing Program seek to increase the availability of loans and capital leases for establishing, expanding, modernizing and improving small businesses. The Business Development Bank offers loans at favourable terms to certain types of businesses. Under the Canada Small Business Financing Program, a small business must apply for a loan or lease at a financial institution (i.e., a bank, credit union or caisse populaire) or a participating leasing company of its choice. If the loan or lease is granted by the financial institution or the leasing company, the federal government guarantees 85% of the lender's or lessor's losses in the event of default.
Short and long-term loans in Canada can be unsecured or secured against the real or personal property of the borrower. Lenders may insist that unsecured loans be supported by related party guarantees and personal or corporate covenants. All provinces and territories have established personal property and land registry systems for purposes of recording Canadian security and real property interests granted by borrowers.
There are also asset-based lenders that will provide financing based on the realizable value of the borrower's assets including its inventory, equipment and/or accounts receivable.
Loans in Canada are available in multiple currencies but most commonly in Canadian and US dollars.
Both the federal and provincial governments may offer grants to foreign investors. Generally speaking, grant programs are aimed at businesses which will locate manufacturing or processing facilities in Canada which in turn will provide a significant number of jobs, or to businesses which will improve Canada's technology or research capabilities.
3. Capital Markets/Public Offerings and Private Placements
In addition to the sophisticated and well-developed Canadian capital markets system provided by Canadian chartered banks and other financial institutions, Canada offers public offerings and private placements through the listing and trading of securities of Canadian and foreign public companies. Generally, securities may be listed and traded on the Toronto Stock Exchange, the TSX Venture Exchange and the Canadian Venture Exchange.
In Canada, securities law is under provincial jurisdiction and each Canadian province and territory (including Alberta) has its own separate securities regulator and securities legislation. Securities legislation is significantly harmonized through the national and multilateral instruments adopted by the Canadian Securities Administrators, which is an umbrella organization comprising all of the provincial securities regulators.
When debt or equity securities are offered for sale to the public, a prospectus must be filed with the securities regulatory authorities in the provinces and territories where the securities are offered. Where securities are offered in Québec, the prospectus must be translated into French.
Issuers filing a prospectus or listing its securities on a Canadian stock exchange will become a 'reporting issuer' and become subject to various 'continuous and timely disclosure' obligations. These include the requirement to prepare and file financial statements, management discussion and analysis, reports regarding material changes and potentially, annual information forms.
Foreign issuers that meet certain conditions have become reporting issuers in Canada by listing on a Canadian stock exchange or by acquiring a Canadian reporting issuer (through a share exchange transaction or other mechanism) may generally meet there continuous disclosure obligations in Canada by filing in their home jurisdiction.
A company may also issue debt or equity securities and have those listed and traded on a stock exchange via private placements - which is an offering of securities to certain types of investors. A private placement typically does not require the same detailed disclosure requirements as required in a prospectus and can oftentimes be less time consuming and more cost effective.
F. LICENCES AND PERMITS
Most businesses must obtain licences from various levels of government. The federal government has extensive licensing powers within certain areas such as foreign trade. The Export and Import Permits Act (Canada) regulates a wide range of materials which cannot be exported without a permit. The Canadian Competition Bureau administers the Consumer Packaging and Labelling Act (Canada) and Measurement Canada administers the Weights and Measures Act (Canada) which require, among other things, the use of metric measurements and of both English and French labelling. Various provincial government agencies have jurisdiction over different types of business. Most municipalities require that business premises be licensed. Municipal building and zoning regulations impose controls over buildings.
G. REGULATION OF FOREIGN INVESTMENT
Canada, like most developed countries, has legislation pertaining to foreign investors. Compared to most other developed countries, however, Canada's regulations are quite limited. In Canada, the foreign investor must comply with the provisions of the Investment Canada Act (Canada) (the "ICA"). The ICA's stated purpose is to "encourage investment in Canada by Canadians and non Canadians that contributes to economic growth and economic opportunities". "Non Canadian" is defined in the ICA to include both individuals as well as corporations owned or controlled by non Canadians.
Generally speaking, under the ICA only large acquisitions in Canada by non Canadians are subject to review by the Investment Review Division of Industry Canada, the federal body which administers this legislation. For small acquisitions and the establishment of new businesses, non Canadians need only notify Industry Canada. There are also some transactions which are exempt from notification or review.
An investment is reviewable if it results in an acquisition of control of a Canadian business whose asset value equals or exceeds the following thresholds:
- for non-World Trade Organization ("WTO") investors (i.e., investors not from a WTO member state), a threshold of $5 million for a direct acquisition and over $50 million for an indirect acquisition; the $5 million threshold will apply however to an indirect acquisition if the asset value of the Canadian business being acquired exceeds 50% of the asset value of the global transaction;
- except as specified in paragraph (iii) below, the 2013 threshold is $344 million, based on the value of the assets of the Canadian business. (The threshold amount is adjusted annually to reflect changes in nominal gross domestic product in the previous year.) An amendment to the ICA, when it comes into force, will initially set the new threshold at $600 million and then it will be incrementally increased to $1 billion, based on a new measurement standard, specifically, the enterprise value of the Canadian business. Regulations will prescribe the manner for calculating the enterprise value.
- Pursuant to Canada's international commitments, indirect acquisitions by or from WTO investors are not reviewable but are still subject to the notification requirement; and
- Acquisitions of cultural businesses are governed by the $5 million and $50 thresholds set out in paragraph (i). "Cultural business" is defined in the ICA and includes certain activities in relation to books, magazines, periodicals, newspapers, music, film, video and audio recordings and radio communications and radio, television and cable television broadcasting.
Notwithstanding the foregoing, any investment which is usually only notifiable, including the establishment of a new Canadian business, and which falls within certain specific business activities, may be reviewed if an Order-in-Council of the federal government directing a review is made and a notice is sent to the investor within 21 days following receipt of a certified complete notification.
When submitting an application for review, a prospective investor must demonstrate that the investment will likely result in a "net benefit to Canada". In determining whether the proposed investment will be of "net benefit to Canada", the Minister of Industry (the "Minister") will consider the following factors:
- the effect of the investment on the level and nature of economic activity;
- the extent to which Canadians will participate in the business;
- the effect of the investment on productivity and technological development;
- the effect of the investment on competition;
- the compatibility of the investment with national industrial, economic and cultural policies; and
- the contribution of the investment to Canada's ability to compete in world markets.
The prospective investor must address each of these factors and provide supporting documentation and financial data when submitting an application for review. Depending upon the nature of and the circumstances surrounding the investment, some of the above factors will be given more weight than the others. The more specific the investor's plans regarding the above factors, the greater the likelihood that a speedy approval will be obtained.
If the Minister advises that he is not satisfied that the investment represents a "net benefit to Canada", the ICA provides an opportunity for the investor to make additional representations and undertakings to demonstrate the net benefit of the investment. Ultimately, if the Minister remains unsatisfied, a notice will be sent to the investor advising of the Minister's decision and the investor will be prohibited from implementing the investment or, if the investment has already been made, the investor will be required to divest itself of the investment.
Under the ICA, the Minister has 45 days to determine whether to allow the investment. The Minister can unilaterally extend the 45 day period by an additional 30 days by sending a notice to the investor prior to the expiration of the initial 45 day period. A further extension is permitted only if the investor and the Minister agree. If no approval or notice of extension is received within the applicable time, the investment is deemed approved. It is not unusual for the Minister to extend the initial 45 day review period by an additional 30 days to permit full consideration of the investment. In the case of a proposed investment in a cultural business, the review will usually require at least 75 days to complete.
Under the ICA, 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. Corporate reorganizations, following which ultimate control remains unchanged, are not exempt (except those involving financial institutions that are otherwise subject to governmental approval).
The Minister must send a notice to the investor that a national security review may be ordered within the prescribed time periods, and, in the event the notice is given prior to completion of the proposed transaction, the investor may not implement the investment until it has received (i) notice that no order for review will be made, (ii) notice indicating no further action will be taken, or (iii) a copy of an order authorizing the investment to be implemented.
In the event a review is ordered, the Governor in Council (i.e. the Federal Cabinet) may (i) direct the non-Canadian investor not to implement the investment, (ii) authorize the investment (with such undertakings and on such terms and conditions as may be ordered), or (iii) 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 ICA does not contain a definition of "national security", which injects Ministerial discretion and corresponding uncertainty into this aspect of the investment review process. Nor does the ICA provide guidance as to the business sectors in which foreign investments are likely to trigger a national security review. Similarly, the legislation does not identify factors to be considered by the government in assessing whether an investment may be injurious to national security. That said, senior Government officials have stated that it does not intend to target any specific industry sector or specific country of origin of a proposed investment.
If the investment is not subject to review as set out above, the ICA simply requires that the foreign investor notify Industry Canada. This notification requirement applies to a non-Canadian each and every time it commences a new business activity in Canada and each time it acquires control of an existing Canadian business where the establishment or acquisition of control is not reviewable. The notification must be made at any time before the implementation of the investment or within 30 days thereafter. This notification procedure is usually a formality as it is intended by Industry Canada that these investments proceed without government intervention.
3. State-owned Enterprises
In December 2012, the Canadian government announced revisions to Canada's foreign investment guidelines, which affect the review process for investments by foreign state-owned enterprises ("SOE"). The Revised SOE Guidelines for evaluating proposed investments by an SOE set out:
- an expanded definition of an SOE; and
- a more detailed list of key factors for determining whether an investment by an SOE will likely be of "net benefit to Canada".
Amendments to the ICA came into force in June 2013 and give effect to elements of the new SOE policies. The definition of an SOE now includes not only entities owned by a foreign state, but also entities that are directly or indirectly owned, controlled, or influenced by a foreign government. There is uncertainty as to when the Revised SOE Guidelines apply, given the new broader definition of an SOE and guidance from the Minister is expected.
The June 2013 amendments to the ICA also introduced a new "control in fact" test for entities in which an SOE is involved, including minority investments by an SOE. The Minister has the ability to make determinations as to whether: (1) an entity is controlled in fact by an SOE; (2) there has been an acquisition of control of a Canadian business by an SOE; and (3) an entity which is otherwise Canadian-controlled is controlled in fact by an SOE. If such a determination is made by the Minister, an acquisition of a Canadian business by such an entity would require a "net benefit to Canada" review under the ICA.
The Revised SOE Guidelines outline key considerations in determining whether a proposed investment by an SOE will be of "net benefit to Canada". In addition to the review factors enumerated in the ICA, in assessing the "net benefit to Canada", the Minister will also consider the governance and commercial orientation of the acquiring SOE, the degree of foreign state control or influence over the SOE, the extent to which the SOE conforms to Canadian standards of corporate governance (such as transparency and disclosure), adherence to free market principles, and the likelihood that the new enterprise will operate on a commercial basis.
Most notably, the new SOE policies provide that future acquisitions by foreign SOEs of controlling interests in the Canadian oil sands will be off limits except on an "exceptional basis".
In the case of other industry sectors, SOE acquisitions of control of Canadian businesses may be subject to a more stringent review. The Minister will monitor SOE transactions throughout the Canadian economy, with a specific focus on three factors:
- the degree of control or influence an SOE would likely exert on the Canadian business that is being acquired;
- the degree of control or influence an SOE would likely exert on the industry in which the Canadian business operates; and
- the extent to which a foreign state is likely to exercise control or influence over the SOE acquiring the Canadian business.
These factors are designed to address what the Canadian government perceives as the inherent risks of SOE investment in the Canadian economy. One such perceived risk is that SOEs are inherently susceptible to foreign government influence, which may be inconsistent with the national, industrial and economic objectives of Canada. Another is that the acquisition of Canadian companies by SOEs may have adverse effects on the efficiency, productivity and competitiveness of those businesses, negatively impacting the Canadian economy in the long term.
The threshold for review of proposed takeovers by SOEs will remain at $344 million, adjusted annually to reflect changes in Canada's nominal gross domestic product in the previous year. This threshold will not be raised to $1 billion. The basis of evaluation for SOEs will remain the book value of assets.
H. TAX CONSIDERATIONS
1. Business Investment - Branch Operation versus Canadian Corporation Operation
The two primary business structures under which the activities of a foreign entity may be carried on in Alberta (or any other province in Canada) are either a Canadian branch operation of the foreign entity or a corporation which has been incorporated in a Canadian jurisdiction. The tax consequences of carrying on business in Canada through a branch will depend on the nature of the foreign entity, i.e. foreign individual, trust, partnership or corporation.
(a) Tax Consolidation in Foreign Jurisdiction
One aspect to be considered in determining whether to use a branch or a corporation in Canada is the tax law of the jurisdiction of the foreign entity and the availability there for consolidated reporting for tax purposes. If losses are expected in the early years of the Canadian operation and profits are being earned and taxed in the foreign jurisdiction, it may be important that Canadian losses be available to offset against profits otherwise taxable in the foreign jurisdiction. If the foreign jurisdiction does not allow the consolidation of losses and income, a branch should represent a significant advantage because the branch is not a separate legal entity and losses incurred may be available to offset profits of the foreign entity. In later years when the branch operation becomes profitable, it may be transferable to a Canadian corporation.
A potential disadvantage of using a branch is that it allows the Canada Revenue Agency (the Canadian taxing authority) to investigate the affairs of the foreign entity with respect to the allocation of income and expenses between a branch and the foreign entity, which may become the basis of an investigation.
(b) Extent of Canadian Tax Liability
A branch is subject to Canadian tax only on the income attributable to its Canadian operations. A Canadian corporation is subject to Canadian tax on its worldwide income.
(c) Thin Capitalization Rules
Canadian "thin capitalization rules" provide for a disallowance of a deduction for interest paid or payable by a Canadian resident on outstanding debts to specified non-residents (i.e., foreign shareholders of the Canadian corporation or people related to them).
These rules apply to Canadian-resident corporations and partnerships of which a Canadian-resident corporation is a member, and are designed to prevent non-residents from financing Canadian operations through debt as opposed to investment in equity (i.e., share capital), and then claiming the interest as a deduction in the calculation of the tax payable by the corporation. Thus, care must to be taken to ensure that large interest-bearing amounts do not become owing unintentionally, even for short periods, by the Canadian corporation to any non-residents. In order to avoid the consequences of the thin capitalization rules, it is important at the time of creation of the subsidiary corporation in Canada to ensure that the investment by way of share capital in the corporation is sufficiently large to enable the corporation to deduct all interest paid on loans made to it by non-resident shareholders. This can, in part, be done through the use of redeemable preferred shares. These shares can provide the vehicle for the investment of equity which can subsequently be redeemed if the retained earnings of the corporation become large enough to reduce the requirement for share capital without adversely affecting the debt/equity ratio. It may also be desirable, in the case of borrowings by a company incorporated in Canada and owned by non-residents, to consider having the Canadian corporation borrow from an arm's length foreign lender with the debt guaranteed by the shareholders.
An investor may also wish to give some consideration to special share structuring of the corporation for the purpose of permitting appropriate investment and receipt of income from its operations by members of the investor's family if the corporation is one whose shares are closely held by family members.
Starting in 2014, the thin capitalization rules will also apply to Canadian-resident trusts and non-resident corporations and trusts that operate in Canada.
(d) Branch Tax/Dividend Tax
A branch is not a separate legal entity, so there are no immediate tax consequences when it is created. A branch of a foreign corporation will normally be subject to tax at the ordinary Canadian tax rates for profits earned by the branch. The calculation of income subject to tax and the tax rates for branch operations are the same as for Canadian corporations. In addition to normal Canadian corporate tax, the net after-tax income earned by the branch operation, after a reduction for amounts invested in Canadian property, is subject to a "branch tax" payable in each taxation year. Canadian branch tax is designed to approximate the withholding tax payable on dividends paid by a Canadian corporation to a non-resident shareholder. The branch tax is payable in the year in which profits are earned, regardless of whether the profits are retained in Canada or remitted to the foreign country. The withholding tax on dividends paid by a Canadian corporation to its foreign shareholder is, on the other hand, payable only when dividends are in fact remitted to the foreign parent. The withholding tax rate on dividends and branch tax under the Income Tax Act (Canada) is 25% but this rate is generally reduced to 10% or 15% in tax treaties between Canada and certain foreign countries. Please see section (e) below for further discussion of tax treaties.
(e) International Tax Treaties
As discussed above, tax treaties may influence the decision to select a branch versus a subsidiary. Under the United States-Canada tax convention, the first $500,000 of branch profits will not be subject to branch tax which would provide a tax saving if a foreign branch is used. In addition, many tax treaties provide that the income of a non-resident individual or non-resident corporation obtained from a business carried on in Canada will not be subject to Canadian income tax except to the extent it is attributable to a permanent establishment located in Canada (such as a fixed place of business in Canada, a dependent agent in Canada, or the provision of services in Canada).
2. Applicable Tax Rates - Corporations
The rate of Canadian tax payable by a corporation depends on: (1) whether its shares are controlled by Canadian residents; and (2) the type of activity or investment carried on by the corporation. Provincial income taxes are levied by each province on income derived by a corporation from business activities carried on by a permanent establishment in the province.
The combined federal-Alberta corporate income tax rate for non-Canadian controlled corporations is 25% in 2013.
Different rates apply to Canadian Controlled Corporations (i.e. corporations not controlled by non-residents, public companies or a combination).
3. Applicable Tax Rates - Individuals
Individuals resident in Canada are taxed on a calendar-year basis on their worldwide income from all sources. Federal and provincial income tax is levied on a progressive rate basis on the amount of taxable income for that year. Income from different sources (i.e. interest and employment income, capital gains or dividends) is effectively taxed at different rates.
Generally speaking, an individual is taxed in the province where they are resident on December 31 of the taxation year, except with respect to income that can be specifically sourced to a different province (e.g. business income). Except for Quebec, a separate provincial tax return is not required to be filed.
Each province has jurisdiction to tax business income if there is a "permanent establishment" within that province. For Alberta purposes, a "permanent establishment" includes a fixed place of business such as an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse. A "permanent establishment" also includes an employee or agent either of whom has general authority to conclude a contract.
4. Non-Business Investment
Foreign investment into Canada that does not constitute carrying on business by the non-resident is subject to the following Canadian tax consequences:
- Canadian withholding tax on certain types of investment income earned in Canada, such as dividends, non-arm's length interest, rents and royalties. The statutory withholding rate is 25%. The withholding tax rates are subject to the treaties Canada has with various countries that reduce this rate. The treaty rates are generally 15% but may differ depending on the type of income.
- Non-participating interest paid by a Canadian resident to an arm's length non-resident is not subject to withholding tax.
- Canadian income tax must be paid on gains derived from the sale of "taxable Canadian property" such as real estate, mining properties or timber resource properties.
In the case of rents received from real property in Canada, instead of being taxed at the withholding rate of 25% (or as reduced by treaty) on the gross amount of the rent, a foreign owner may be taxed at Canadian tax rates on the net profits earned from such rents in much the same manner as a resident of Canada, provided certain elections are made and a Canadian income tax return is filed with respect to such rents.
5. Sales Tax
A 5% goods and services tax (GST), which is a European-style value added tax, applies throughout Canada pursuant to federal law. This tax has various requirements for registration and collection of tax by any entity providing "taxable supplies" in Canada. GST is the only sales tax that applies in Alberta; there is no provincial sales tax or harmonized sales tax in Alberta. Businesses in Alberta report to the Canadian taxing authority in respect of GST compliance.
I. COMPETITION LAW
The Competition Act (Canada) (the "CA") is Canada's federal antitrust and trade practices legislation and governs most businesses and business conduct in or affecting Canada. The purpose of the CA is to maintain and encourage competition in Canada.
The CA regulates trade and commerce activities and monitors trade practices. The CA is generally divided into three principal parts: criminal offences, civilly reviewable matters and merger regulation. Many of the criminal offences have similar corresponding civil provisions for less egregious or potentially pro-competitive conduct. The Commissioner of Competition ("Commissioner"), head of the Competition Bureau, Canada, is charged with the administration and enforcement of the CA. The Commissioner may challenge a merger or non-criminal anti-competitive conduct that violates the CA by making an application for an order to the Competition Tribunal, an adjudicative (quasi-judicial) body. Criminal offences are prosecuted by the Public Prosecution Service of Canada before a superior court with criminal jurisdiction in Canada.
The CA establishes a number of criminal offences, the most serious of which is the anti-cartel provision. Specifically, the CA contains a per se prohibition against agreements between competitors to, among other things, fix prices, allocate markets or limit the supply of a product (which includes a service). In addition, the CA contains a criminal prohibition against bid-rigging, making false or misleading representations, deceptive telemarketing, deceptive notice of winning a prize and pyramid selling schemes, among others. Upon conviction, a corporation or individual may be fined and, in the case of an individual, sentenced to imprisonment for a term up to 14 years, depending on the offence. Further, the CA establishes a private right of action for breach of the criminal provisions of the CA.
The CA further provides that certain business practices may constitute civilly reviewable conduct, meaning that the conduct is not considered criminal but instead may be challenged by the Commissioner. The principal civil provision is the abuse of dominant position which prohibits a dominant firm or firms (acting jointly) from engaging in a practice of anti-competitive acts that results in, or is likely to result in, a substantial lessening or prevention of competition (meaning the conduct has an exclusionary, predatory or disciplinary effect on competitors or potential competitors). Further, the CA provides for civil review of agreements among competitors that are not otherwise criminal and that prevent or lessen, or are likely to prevent or lessen, competition substantially. Other civilly reviewable conduct includes resale price maintenance, exclusive dealing, tied selling, market restriction and deceptive marketing practices (such as making misrepresentations to the public). If the Commissioner can establish a person or persons have engaged in civilly reviewable conduct, the Competition Tribunal may make corrective orders, such as ordering a person to do or refrain from doing a particular act in the future or otherwise take action necessary to correct the impugned conduct, and, in some cases, order payment of an administrative monetary penalty (which, in certain circumstances, may be as high as $10 million or $15 million for subsequent orders). If the Tribunal issues an order, a private right of action is available under the CA where a person has failed to comply with the order. For certain civilly reviewable matters, a private person may apply directly to the Competition Tribunal for relief.
2. Merger Control and Notification
Mergers under the CA are treated as a special type of civilly reviewable conduct. The Commissioner may challenge any merger that is, or is likely to, lessen or prevent competition substantially. If established, the Competition Tribunal may make an order prohibiting the parties from completing the merger or, in the case of a completed merger, ordering the merger to be dissolved or the divestiture of some or all of the assets to a third party. The Commissioner must bring an application within one year after the merger is substantially completed.
In addition, the CA sets out certain thresholds (primarily financial thresholds) which, if exceeded, require a merger to be pre-notified to the Commissioner before the merger can be completed. If a merger is notifiable, the parties must supply the Commissioner with the required information and a 30 day waiting period applies. In certain circumstances, the Commissioner may issue a supplementary information request to one or more of the parties thereby extending the waiting period to 30 days after the information has been received by the Commissioner. A merger that is subject to the notification requirements must not be completed until the applicable statutory waiting period has lapsed or the merger has been cleared in advance by the Commissioner.
There are two financial thresholds that, if exceeded, will require notification of a proposed merger to the Competition Bureau:
- Size of Parties Threshold: The parties to a proposed merger, together with their affiliates, in aggregate have assets in Canada or gross revenue from sales in, from or into Canada that exceeds $400 million. The parties to a proposed acquisition of shares are the person or persons who propose to acquire the shares and the corporation the shares of which are to be acquired.
- Size of Transaction Threshold: The applicable threshold will depend on type of transaction, however generally speaking if the assets in Canada of the target or combination (or the assets in Canada being acquired, if an asset purchase) or gross revenue from sales in or from Canada generated from those assets exceed $80 million (which is the threshold for 2013, and is adjusted annually), the threshold will be met. There is also a requirement that the target or combination carry on an operating business (or assets being acquired are from an operating business).
There may be slight variations of the Size of the Transaction Threshold depending on the type of transaction covered: acquisition of assets, acquisition of shares in a corporation, amalgamation, formation of a combination (otherwise than through a corporation) or acquisition of an interest in a combination (otherwise than through a corporation). For example, when acquiring shares in a corporation, there is an applicable non-financial threshold related to the percentage of voting shares that will be held by the purchaser (together with their affiliates) as a result of the acquisition: 20% (if any voting shares are publicly traded), 35% (if no voting shares are publicly traded) and 50% (if either the 20% or 35% thresholds are already exceeded before the proposed acquisition).
J. EMPLOYMENT AND LABOUR LAW
1. Employment Law
Alberta, like other Canadian provinces, has intervened to regulate the relationship between employers and their employees. Most employees may expect certain minimum terms and conditions of employment, and may attempt to better their circumstances through collective bargaining. Employees are protected from discrimination, and may seek redress for wrongful termination of their employment. Employers owe their employees a duty to ensure safety in the workplace, and must contribute to a government plan to provide compensation to employees who are injured at work.
2. Statutory Conditions of Employment
Minimum standards for wages and overtime pay rates, hours of rest, paid vacations and general holidays, and parental leave are established by legislation. In general, these standards apply to all employers and employees in the province. However, farm or ranch workers are not entitled to receive overtime pay, a minimum pay, vacations or vacation pay, general holidays or general holiday pay. All employers must maintain employment records. Employers need not pay overtime pay to supervisory and managerial employees, or employees employed in a confidential capacity. An agreement by a person that the legislation or a provision of it does not apply or that the remedies provided by it are not to be available for his benefit is against public policy and void, although the Director of Employment Standards may approve a scheme of employment between an employer and his employees. Employers who do not abide by the legislation are guilty of an offence. When a corporation is guilty of an offence, every director or officer or the corporation who directed, authorized, assented to, permitted, participated in or acquiesced in the offence is also guilty of an offence.
Summary procedures for the collection of wages, overtime pay, vacation pay, general holiday pay, pay in lieu of notice of reduction in wages or notice of termination and parental benefits are available to employees to whom these are not provided. Employees may make written complaints to the Director of Employment Standards of the Department of Human Resources and Employment. An Employment Standards Officer may mediate between employers and employees in order to settle or compromise the differences between them. If settlement is not possible, the officer may issue an order that the employee is entitled to the relief claimed or not entitled to the relief claimed, as the case may be. Decisions of officers may be appealed to government appointed umpires. An order, declaration or determination of an umpire is final and binding. Neither officers nor umpires may consider counterclaims or claims for set-off by employers. Orders of officers and umpires may be filed in the Court of Queen's Bench and enforced as an order or judgment of that court.
An employee may also make a summary application for the recovery of a limited amount of unpaid wages to a Provincial Court judge.
In addition, payment of amounts owing to employees may be enforced by third party demands by the Director of Employment Standards. In certain circumstances, directors of corporations may be personally liable for wages owing to employees.
3. Collective Bargaining
The organized labour force in Alberta represents less than 25 per cent of the non-agricultural work force. Collective bargaining in the private sector is permitted and controlled by legislation. Most employees have the right to be members of trade unions, to participate in the lawful activities of trade unions, and to bargain collectively with their employers through bargaining agents. Employers have corollary rights. However, employers may choose to bargain collectively with their employees on their own behalf rather than through an employer's organization, while employees must bargain through a trade union.
4. Protection from Discrimination
Discriminatory employment practices are prohibited in Alberta. Hiring, firing or discriminating against any person with regard to employment or any term or condition of employment because of the race, religious beliefs, colour, gender, physical disability, mental disability, marital status, age, ancestry, place of origin, source of income, family status or sexual orientation of that person or any other person is prohibited. Employment advertisements and application forms must not express either directly or indirectly any limitation, specification or preference as to the race, religious beliefs, colour, gender, physical disability, mental disability, age, ancestry, place of origin, source of income, family status or sexual orientation of any person or require an application to provide any information concerning these matters. Furthermore, inquiries may not be made of applicants regarding these matters. However, none of these prohibitions apply with respect to a refusal, limitation, specification or preference based on a bona fide occupational requirement.
Specific prohibitions apply to domestics employed in private homes and farm employees who reside in the home of their employers. Employers are prohibited from employing male and female employees at different rates of pay for similar or substantially similar work in the same establishment. Anyone who has been discriminated against may complain within one year to the Alberta Human Rights Commission which must investigate and endeavour to settle the complaint. No discriminatory action may be taken against anyone because that person has made a complaint. Although, in most cases, complaints are settled, a Board of Inquiry may, if necessary, be appointed to hear the complaint. The Board may order reinstatement or compensation for income lost or expenses incurred because of an employer's discriminatory action.
5. Termination of Employment
An employee whose employment is terminated without cause may seek redress in a number of ways.
If the employee and employer in question are parties to a collective agreement, the employee must have recourse to the grievance and arbitration procedure provided for in the collective agreement. If the termination is such that it may constitute an unfair labour practice, a complaint may be made to the Labour Relations Board. If the termination constitutes a discriminatory employment practice, a complaint may be made to the Human Rights Commission. If the termination was contrary to the Employment Standards Code, a complaint may be made to the Director. In certain circumstances, reinstatement may be ordered if the employee's complaint is well-founded.
Most other employees are entitled to certain minimum periods of notice or pay in lieu of notice, depending upon the length of the employee's service with the employer. If written notice of termination is not given and pay in lieu of notice is not provided, the employee may complain to an officer of the Department of Human Resources and Employment in the same manner as if he had not been paid wages. The making of a complaint does not prejudice an employee's common law rights or civil remedies.
An employee who has been improperly dismissed may also make a complaint on oath before a provincial court judge. The judge may then require the employer to appear in answer to the complaint. If the judge finds that the employee has been wrongfully dismissed, he may order the employer to pay an amount not exceeding Can $100, together with any wages found to be due to the employee (to a maximum of six months wages or Can $500, whichever is less) and costs. The order may be filed in the Court of Queen's Bench and enforced as an order of that court. The judge may also inquire in a summary manner into any claim of the employer by way of counterclaim or set-off. If the amount to which the employer is entitled exceeds that to which the employee is entitled, the employee's claim will be dismissed, without prejudice to the employer's right to commence a civil action.
Finally, an employee may bring an action against his employer in the Court of Queen's Bench or in the Provincial Court (Civil Claims) for a declaration that he has been wrongfully dismissed and for damages for breach of contract. At common law, a contract of employment is said to contain an implied term that the employee will be entitled to reasonable notice of the termination of his employment unless that termination is for just cause. If reasonable notice is not given, the dismissed employee is entitled to damages equal to the salary or wages and benefits which would have accrued to him had he been given reasonable notice. He may also be entitled to be reimbursed for reasonable expenses of seeking alternate employment.
6. Occupational Health and Safety
Occupational health and safety is safeguarded by the legislative imposition of duties on both employers and employees. Every employer must ensure, as far as is reasonably practicable, the health and safety of his workers and any other workers present at his work site. An employer must also make his workers aware of their responsibilities and duties. An employer may be required to establish a joint work site health and safety committee and a code of practice which set out guidelines on the requirements of the regulations applicable to work site and safe working procedures to be followed at the work sites. Serious injuries or accidents which occur at work sites must be reported by an employer. Each employee must take reasonable care to protect the health and safety of himself and other workers present while he is working and to cooperate with his employer in the interest of health and safety. Employees must refuse to carry out dangerous work, and are protected from disciplinary action by their employer for so refusing.
7. Workers' Compensation
The Workers' Compensation Board administers a compulsory plan to ensure compensation for workers injured during the course of their employment, and their dependents.
K. ENVIRONMENTAL LAWS
Canadian lawmakers regulate the environment at three different government levels: federal, provincial and municipal. The federal and provincial governments have enacted legislation, regulations, policies and guidelines, and municipalities have passed by-laws, all geared to the protection of air, land, surface and groundwater. These laws regulate hazardous and/or toxic substances, pollution, waste, the import, export and transportation of dangerous goods, brownfields development, spills and clean-ups, among many other things.
In addition, approval of various government agencies with responsibility for the environment is required to carry out many activities and formal environmental assessment is often a precursor to many public and private developments. Both of these require varying degrees of public participation in their processes.
Corporations in management or control of a property (or formerly in management or control of a property) are subject to a broad range of potential statutory and civil liability arising out of non-compliance with environmental laws or contamination at the property. Similar liability can rest with current or former directors and officers. There are two principal sources of statutory liability imposed by environmental laws in Canada, "offence liability" and "remediation liability". Offence liability generally arises from provisions in environmental laws that create offences for causing or permitting unlawful pollution or failing to report it. Remediation liability generally arises from provisions in environmental laws authorizing a regulatory agency to order corporations to conduct remediation of their current or former properties (whether or not the corporation caused such contamination).
In order to enforce these two types of statutory liability, government officials have broad powers of investigation and inspection, and have access to a number of investigative techniques, including certain search and seizure powers.
Corporations also have potential civil liability for any contamination at the property that causes harm to third parties. This liability is enforced through the civil courts by private lawsuit.
Secured creditors can also be held liable for environmental matters, though the circumstances in which secured creditors can be held responsible for environmental matters are significantly narrower than the liability faced by corporations and their directors and officers, unless secured creditors step into the shoes of the debtor. Generally speaking, the liability does not arise by virtue of the making of a loan but, rather, it arises due to the involvement the secured creditor may have with the property of the debtor as a result of the debtor's default and/or insolvency.
Given the Canadian regulatory regime, and its emphasis on corporate responsibility for environmental issues associated with a property, regardless of who caused the contamination, and the extension of this liability to directors and officers, thorough due diligence is important prior to any transaction that may result in the acquisition of property or a business that may be subject to environmental regulation at any one of the three government levels. The oil and gas industry in Alberta is heavily regulated with respect to environmental matters.
1. Oil and Gas
The province of Alberta is home to a mature oil and gas industry, comprised of both a mature conventional oil and gas sector, and a rapidly growing oil sands sector. Alberta's proved oil reserves are estimated to be 170 billion barrels, of which 169 billion barrels are in the oil sands. The province estimates that up to 315 billion barrels may be recoverable. Oil production is approximately 2.2 million barrels per day. Proved natural gas reserves are approximately 36 trillion cubic feet, and production is approximately 1.2 trillion cubic feet per year.
Oil and gas is a provincial resource in Canada. Oil and gas resources are generally leased from the province, and royalties are set and collected by the province.
In the last year, Alberta has undertaken a comprehensive initiative to streamline the approval process for energy projects by forming the new Alberta Energy Regulator (AER). The AER takes over from a number of regulators and is intended to provide a single-window approach for all approvals required for energy projects.
One of the most difficult issues that the Alberta oil and gas industry has faced in the last several years is the limited availability of oil pipeline transportation to major markets. While there are a number of existing pipelines to eastern Canada, the U.S. midwest and Vancouver, and several new pipelines have been built over the last last decade, demand for transportation still exceeds supply. Several new oil pipelines are proposed to take oil to the northern B.C. coast (Northern Gateway), the U.S. Gulf Coast (Keystone XL), Vancouver (Trans Mountain) and the Canadian east coast (Energy East). Constraints on pipeline capacity have led to Canadian crude oil trading at a significant discount compared to U.S crude, and it is hoped that the addition of pipeline capacity will reduce that discount and result in increased revenues to Alberta producers. In addition, many producers have already begun seeking alternatives to oil pipeline transportation, such as rail transport.
The construction of new interprovincial pipelines is regulated by the Canadian federal government, through the National Energy Board. The Canadian government is very supportive of the oil and gas industry, and has introduced a number of initiatives in the last year to streamline the approval process, provide more certainty to applicants, and reduce the amount of time required to obtain approvals for new pipelines.
The Alberta oil sands are the third largest reserve of oil in the world. The oil is recovered by either large scale surface mining operations, or in situ by steam assisted gravity drainage (SAGD). Current production is approximately 1.7 million barrels of bitumen per day, and with a number of new mining and SAGD projects in development, is expected to rise to 3.7 million barrels per day by 2021.
Following a number of high profile takeovers in the oil and gas industry, the Canadian federal government has recently revised foreign investment review processes, particularly where investments are being made by foreign state owned enterprises (SOEs). If a foreign SOE proposes to acquire control of conventional oil and gas production, the review of the acquisition will be very rigorous; if control of oil sands assets will be acquired, then the approval will only be granted in exceptional circumstances. The goal of the federal government is to encourage foreign SOEs to enter into joint ventures in Canada rather than acquiring control. This is further described in Section G.3 above.
The electricity sector in Alberta, unlike in other Canadian provinces, is investor-owned rather than government-owned.
In the early 2000s, the government of Alberta deregulated the electricity industry. Generation was entirely deregulated: all new power plants built in Alberta are required to sell their production in the open market at unregulated market prices. The wholesale and retail sectors were similarly deregulated: all electricity is purchased in the open market at market prices. A small regulated retail option is maintained for households and very small consumers. The government established a power pool, which runs an hourly auction to set the provincewide market price, and electricity buyers and sellers may either sell into and buy from that pool (as price takers) or may enter into private hedges to fix their prices. The Alberta Electric System Operator (AESO) runs the electricity market, and the Market Surveillance Administrator has oversight obligation to ensure fairness.
Transmission and distribution were not deregulated, and remain subject to conventional public utility regulation. The transmission system is owned by a number of investor-owned utilities, and is administered by the AESO. As a result of load growth and the retirement of existing assets, the AESO has identified a number of new transmission projects that are required to reinforce the transmission system. The AESO estimates that the cost of these projects will be approximately $13.5 billion by 2020.
M. ABORIGINAL LAW
In Canada, Aboriginal law often affects the development of land and natural resources. This is of particular interest to businesses involved in the energy, forestry, mining and transportation sectors who are developing projects located on lands covered by treaties, Indian reserve lands and areas subject to Aboriginal land claims.
This arises out of the recognition of Aboriginal and treaty rights in Canada's Constitution Act, 1982. The Aboriginal peoples of Canada are defined in the Constitution Act as including the Indian, Inuit and Metis people of Canada. Since the recognition of Aboriginal and treaty rights in the Constitution Act, a body of law has developed to assist in defining the scope of these rights.
"Aboriginal rights" consist of those rights held by Aboriginal peoples that relate to activities that are an element of a practice, custom or tradition integral to the distinctive culture of the Aboriginal group claiming such rights. They may include rights such as hunting, fishing, trapping and Aboriginal title. Aboriginal title is a right to the land itself and is an encumbrance on the Crown's underlying title to the lands.
"Treaty rights" are those rights that are contained in written agreements known as "treaties" entered into between the Government of Canada and Aboriginal peoples. In exchange for the surrender of their rights and title to tracts of land traditionally used by Aboriginal peoples, they were granted various rights, including, tracts of land known as "Indian reserve lands", rights to hunt, fish and trap and payment of various annuities.
In Alberta, specific historic treaties, known as Treaties 6, 7 and 8 were entered into between the Government of Canada and the Aboriginal peoples. The result was the creation of various Indian reserve lands throughout Alberta, together with specific treaty rights that can be exercised by Aboriginal peoples. Despite the creation of reserve lands in Alberta, there also continue to be other areas of land that may be subject to Aboriginal land claims and Aboriginal interests. Therefore, undertaking business activity in relation to reserve lands and lands subject to Aboriginal interests and claims requires specific knowledge about and experience in dealing with the unique issues that arise, together with an understanding of the collaborative and respectful approaches necessary to achieve success. Developments on these lands may be subject to specific legislative and regulatory requirements, including a legally required consultation process which may vary from case to case.
N. BANKRUPTCY, INSOLVENCY AND RESTRUCTURING
In Canada there are two major federal statutes governing commercial liquidation and restructuring, the Bankruptcy and Insolvency Act (the "BIA") and the Companies' Creditors Arrangement Act (the "CCAA").
The BIA can be used as both a liquidation and restructuring mechanism. There are two distinct processes available to insolvent companies under the BIA. There is 'bankruptcy' which is a liquidation process involving the appointment of a "Trustee in Bankruptcy", a licensed professional who supervises the liquidation of the assets of the company and the distribution of the resulting proceeds in accordance with a statutory priority scheme. A bankruptcy process can be initiated by the debtor or a creditor.
There is also a 'proposal' process under the BIA, in which the debtor can, in a court supervised process, stay any proceeding against it for a period of time and within a specific time period put forward an offer, called a "proposal", to its creditors for some form of compromise which is ultimately voted upon by the creditors. The proposal process involves the appointment of a licensed professional to serve as "Proposal Trustee". The nature and content of the proposal is somewhat limited by statutory requirements but otherwise is limited only by what is necessary to get the support of more than half of the voting creditors that must also represent more than two-thirds of the dollar value of the claims held by the voting creditors. In the event, the proposal is not accepted by the requisite number of creditors, the debtor is deemed to be bankrupt. If the proposal is accepted by the requisite number of creditors and approved by the court, the debtor needs only to comply with the terms of its proposal to have all of its liabilities existing at the time it filed deemed fully and finally satisfied.
The CCAA provides for a process very similar to the BIA proposal process but with additional flexibility The CCAA process is only available to companies that have total liabilities exceeding five million dollars. The CCAA process is typically initiated by the debtor and is generally used in the larger and more complex restructurings as it allows the court a great deal of discretion in determining the process, procedure and impact of a CCAA proceeding. The CCAA process involves the appointment of a licensed professional to serve as "Monitor". Ultimately, the goal of a CCAA proceeding, like the proposal process, is for the debtor to put forward an offer to its creditors for some form of compromise which is ultimately voted upon by the creditors. Under the CCAA the debtor's offer is called a "plan of arrangement". Again for the plan of arrangement to be considered effective, the plan must get the support of more than half of the voting creditors that must also represent more than two-thirds of the dollar value of the claims held by the voting creditors. Like a proposal, if the plan is accepted by the requisite number of creditors and approved by the court, the debtor needs only to comply with the terms of the plan to have all of its liabilities existing at the time it filed for protection deemed fully and finally satisfied. Unlike the proposal process, if the plan is voted down the debtor does not automatically become bankrupt but is, practically speaking, left with very few alternatives.
In some circumstances, a process known as a "receivership" is used to liquidate or realize upon the assets of an insolvent debtor, sometimes in conjunction with bankruptcy and sometimes as a standalone process. A receivership can be initiated by a party such as a secured creditor that has a contractual right to appoint a receiver without the involvement of the courts or a receivership can be initiated by a court order. In either instance, an individual or firm is appointed for a specific purpose or purposes from as broad as running the business of the debtor to as narrow as selling a specific assets of the debtor. If the receiver is running the business of the debtor it is usual referred to as a receiver manager.
There are also alternative procedures under the Canada Business Corporations Act, the Alberta Business Corporations Act and the Winding-Up and Restructuring Act that may be used to restructure companies in certain atypical circumstances.
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