Investing in Canada: When you Can and When you Can’t

The Investment Canada Act is in place to review the investments in Canada by non-Canadians. This is done in a way that encourages non-Canadians to invest and promotes economic growth and employment opportunities in Canada. It also reviews the investments in Canada by non-Canadians that could pose a threat to the national security. The associated legislation and rules are complex in nature.

Understanding if the act applies to you

The investment act applies to individuals who are not Canadian citizens or permanent residents, as stated by the Immigration and Refugee Protection Act. The act states that “a person who has been ordinarily resident in Canada for not more than one year after the time at which he/she first became eligible to apply for Canadian citizenship”, then that makes you a non-Canadian and you are required to comply with the provisions of the Investment Canada Act. As a non-Canadian if you plan on establishing a new Canadian business or if you want to acquire an existing Canadian business, then you are required to file a Notification or an Application for Review of the investment. The only time when you won’t have to file either of the two is when a specific exemption applies.

Understanding when to file a notification

As a non-Canadian, you are required to file notifications each and every time you commence a new business activity in Canada. This is also applicable for individuals who acquire control of an existing Canadian business and where the establishment or acquisition of control is not a reviewable transaction. It is important to file a notification under the time period of thirty days, after the implementation of the investment.

Understanding when the investment is reviewable

A reviewable investment is the one where a Canadian business has been acquired and the value is calculated in a manner that is prescribed in the Investment Canada Regulations and the Canadian business being acquired equals or exceeds the relevant threshold stated under the Investment Canada Act. Different thresholds for review apply in respect of:

a. Private sector WTO investments

b. State-owned enterprise WTO investments

c. Non-WTO investments and Investments in a cultural business

Understanding the enterprise value of assets calculated

For acquisitions for control of a publicly traded Canadian business, the market capitalization is used to calculate the enterprise value of the assets. Along with that, its total liabilities excluding its ordinary course liabilities is added to the asset value and the entity’s cash and cash equivalents are subtracted. For Canadian businesses that are not publicly traded, the enterprise value is calculated using its total acquisition value and its total liabilities value with the exclusion of its ordinary course liabilities, minus its cash and cash equivalents. For Canadian businesses acquired through asset acquisition, the enterprise value is calculated as its total acquisition value, along with the assumed liabilities, minus its cash and cash equivalents. The transaction documents that are used to implement the investment are used to determine these. The Investment Canada Act has very rigid provisions related to confidentiality. All information that is received by Industry Canada and its officials in relation to an investor or a Canadian business is considered as privileged and confidential. The provisions related to confidentiality are in place to encourage investors to share information with the appropriate Industry Canada officials, as this will allow the officials to make the review process more efficient for each of the parties involved. The Investment Canada Act has many provisions and can be a little overwhelming. To get a deeper insight into the Investment Canada Act, get in touch with Prowse Chowne. Our apt and able legal team will be more than happy to provide you with the appropriate legal counsel.