Investment in Canada and the Impact of Bill C-60

Overview

Investment in Canada by non-Canadians is regulated by the Investment Canada Act.^[1] The Act creates a framework whereby non-Canadians investing in Canada by establishing a new business or acquiring an existing one are required to alert the government. Investments that exceed a specified threshold are subject to review. Subject to exceptions, for investments not requiring review, non-Canadians are simply required to notify Industry Canada of the value of the assets involved, the number of employees of the business and parties to the transaction before or within 30 days after the transaction. There are also sector specific legislation and/or policies that restrict investment in certain industries which a potential investor needs to be aware of such as in financial services, telecommunications and broadcasting, transportation (air and rail), and “cultural” businesses.

The Thresholds

For the purposes of thresholds the Act makes distinctions between the types of acquisitions and the types of investors. The two types of acquisitions would be direct acquisitions and indirect acquisitions, where indirect acquisition is defined as acquiring control of a Canadian business through the acquisition of a non-Canadian parent entity. In either case though, the general rule is that one needs to consider the thresholds only when acquisition of Canadian assets involved is greater than five million dollars (CAD) since January 12, 2013. It is noteworthy that indirect acquisitions by WTO investors are not reviewable and only require notifying Industry Canada.

Some of the Exceptions

The thresholds above do not apply to cultural businesses and those relating to Canada’s national identity and heritage, which may come under the jurisdiction of the Department of Canadian Heritage and may become subject to review on the basis of public interest with 21 days of notification. There is also a national security review that can take place for any investment if the Minister for Industry has reasonable grounds to believe that an investment could be injurious to national security.

The Review

If a review is required, the investor will have to make an application to Industry Canada in order to satisfy the “net benefit to Canada” test. This test involves a consideration of a number of economic factors by the Minister. These factors include: the effect that the investment has on domestic competition, Canada's ability to compete globally, the degree and significance of participation by Canadians, the compatibility of the investment with national and provincial economic and industrial policies, and the level and nature of economic activity, productivity, industrial efficiency and product innovation in Canada.

While the statute prescribes 45 days within which the Minister should notify the investor of the decision and allows for some extension, in practice as the investor enters in to negotiations with the Minister in order to fulfill the net benefit requirement, the process can take much longer. Through negotiations and modifications compliance can and often is achieved.

Bill C-60

Following the review of applications for acquisitions by two different state-owned enterprises (SOEs), which were ultimately approved in December 2012, on April 2013, the government of Canada proposed some changes to Investment Canada regime. These changes include increasing the power of the Minister in scrutinizing investments where it is determined that an SOE is involved, increasing general review thresholds, and giving the Minister more flexibility in conducting national security reviews. The special rules regarding state owned enterprises rules are broad and can even apply to individuals acting under the influence of a state.

This legislation was enacted because of recent concern in Canada about the influence of foreign SOEs on the Canadian economy and on Canada’s security.  However, private foreign investors, particularly those operating underneath or beyond the scope of the threshold of review, should not be concerned about the reach of this new legislation, which is not aimed at them in theory or in practice.