What is the Investment Canada Act? Part One: New Businesses

Canada is receptive to international investment, and the government aims to encourage a business climate within the country that is open to it. However, the government is also cognizant of the type of investments that are coming in and conducts its due diligence in monitoring the level of new foreign investment. Investments that are a net benefit to Canada are favoured, and government officials monitor transactions that are significant due to their size and respective business sector. This monitoring and review process, which also considers the overall plans for the business, is conducted under the Investment Canada Act.

The two primary concerns of the Investment Canada Act are:

  • The establishment of new Canadian businesses.
  • Acquisition of control of existing Canadian businesses by non-Canadian interests.

With this in mind, it means the Investment Canada Act does not reach:

  • New offshore financing of a Canadian foreign-controlled business that does not include a change in control.
  • Investment in a Canadian business from abroad that is passive or portfolio.
  • A foreign-controlled business that is expanding into a broader range of Canadian activities related to its previous Canadian activities.

To clarify, an individual, government, government agency or entity that is not from Canada is classified as a “non-Canadian” under the Investment Canada Act. In comparison, the Act classifies a “Canadian” as an individual who is a Canadian citizen or permanent resident.

Determining if a corporation is, in fact, “Canadian” requires more complex consideration as it pertains to the Investment Canada Act. For example, government officials must determine if the controlling shareholders of a particular corporation are “Canadian” or if deeming provisions are satisfactory.

Establishment of new business

Those who are deemed “non-Canadian” under the Investment Canada Act are required to file a notification every time they wish to embark on a new business activity in the country—this also applies if they are taking control of a Canadian business in which the establishment or acquisition of control is not a renewable transaction. A prospective foreign business owner is required to file their notification no later than 30 days after the investment is implemented.

The two possible exceptions to the notice-only requirement on the establishment of a new business are: the establishment of a new business in a culturally-sensitive sector, such as publishing, which can be made subject to full review within 21 days after the notice is filed; and a new business that triggers a national security review.

To learn more about the about the Investment Canada Act, read Part Two of this three-part series.

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