Canada: ‘Trick or Tweak' – Proposed Relaxation of Foreign Ownership Restrictions

Last Updated: May 18 2017
Article by Karl Gustafson, QC and Lucia Stuhldreier

The Federal Government gave first reading on May 16, 2017 to Bill C-49, an Act to amend the Canada Transportation Act (the “CTA”) and other acts respecting transportation[1].

As the government announced previously, Bill C-49 proposes to allow increased ownership of voting interests in Canadian air services with non-Canadians being entitled to own up to 49% of the voting interests.  Currently, Section 55(1) of the CTA defines "Canadian" to mean

"... a Canadian citizen or a permanent resident within the meaning of subsection 2(1) of the Immigration and Refugee Protection Act, a government in Canada or an agent of such a government or a corporation or other entity that is incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least seventy-five per cent, or such lesser percentage as the Governor in Council may by regulation specify, of the voting interests are owned and controlled by Canadians."

Bill C-49 introduces an amendment to Section 55(1) that replaces the underlined words with the following:

"(c) a corporation or entity that is incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least 51% of the voting interests are owned and controlled by Canadians and where

(i)   no more than 25% of the voting interests are owned directly or indirectly by any single non-Canadian, either individually or in affiliation with another person, and

(ii)   no more than 25% of the voting interests are owned by one or more non-Canadians authorized to provide an air service in any jurisdiction, either individually or in affiliation with another person;"

Section 61(a)(i) of the CTA requires that an applicant for a licence to operate a domestic air service in Canada must demonstrate to the satisfaction of the Canadian Transportation Agency (the "Agency") that the license is a "Canadian".  Section 55(1) of the CTA provides a two-part ownership test for Canadian air services, the first part being the de jure test of percentage ownership of voting interests, and the second part being the de facto test of "control in fact".  Bill C-49 changes the de jure test but makes no change in the de facto test. 

Increasing the percentage of the aggregate voting interests that non-Canadians are permitted to own up to 49% may provide additional flexibility for Canadian air services to attract investment from non-Canadians provided those non-Canadian investors are completely unrelated and no single investor or any person with whom it has an affiliation hold more than 25% of the voting interests, directly or indirectly.  Critically, however, Canadians must still retain 'control in fact' of air services.  The Agency will consider a wide range of factors and make a subjective assessment of whether Canadians retain control in fact.  The Agency has published a non-exhaustive list of factors it will consider that includes the following[2]:

It is important to recognize that the Agency's assessment need not be based on the actual exercise of control, but the potential ability to exercise of control, directly or indirectly.  The Agency has long recognized that business decisions can be influenced in various ways by minority interests, by financial institutions, by key suppliers and by senior employees or officers.  Control in fact is determined based on an assessment of the ongoing power and ability, whether exercised or not, to determine or decide the strategic decision-making activities of an air carrier and the ability to manage its day-to-day operations.

Under the new regime, if non-Canadians hold up to 49% of the voting interests of a licensed Canadian air service, the Canadian licensee will still have to demonstrate, on an ongoing basis, that the non-Canadians are unaffiliated and are not acting, will not act, and cannot act, directly or indirectly, together to exercise control.  Exactly how one will be able to demonstrate those facts to the satisfaction of the Agency remains to be seen.  We know that even in circumstances in which Canadians hold 75% of the voting interests, the Agency may be extremely skeptical that a non-Canadian holding the remaining 25% is not able to exercise control in fact.  Against that background, one can readily imagine that the Agency will have a hard time concluding that control in fact resides with Canadians if Canadians hold only a bare majority of voting interests at 51%, particularly if the Canadian interests are held by more than one person.  In that circumstance, it seems clear that the licensee will have to go to extraordinary lengths to persuade the Agency that there is no possibility that one or more Canadians will collaborate, directly or indirectly, in any instance with non-Canadians to make or influence key business decisions.

The proposed amendments would also likely not immediately reduce the foreign ownership restrictions for air carriers who obtained domestic licenses based in part on incorporation documents containing the current voting interest restrictions or subject to conditions relating to monitoring and filing periodic reports on foreign ownership of voting interests. Changes in these areas that are likely to affect a carrier's Canadian status would trigger the requirement to provide notice to the Agency and, potentially, further review of the carrier's continuing eligibility to hold a domestic license.

It is not clear whether the proposed amendment to the CTA effects a real substantive 'tweak' to the rules or whether the change is illusory and a 'trick'.  The proposal in Bill C-49 may be of some assistance in allowing Canadian air carriers to obtain investment funds from non-Canadian sources, but the circumstances in which those investments can be implemented without running afoul of the control in fact test appear to be very limited.


[1] Bill C-49 is subject to amendment as it proceeds through the parliamentary process and will not become effective until approved by Parliament and royal assent is given.

[2] Canadian Transportation Agency, Interpretation Note: Control in Fact – October 5, 2015.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2017

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Karl Gustafson, QC
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.