There is a federal law in Canada called the Investment Canada Act, and it is used to govern the flow of foreign investment into the country. At the federal level, this legislation is the only one regulating foreign investment in the country. The Act provides the government with authority to review foreign investments to determine whether or not they provide a net benefit to Canada and to place conditions on such investments if required to do so in order to protect the country’s interests. The Act applies to investments in businesses that are engaged in cultural industries and investments that are likely to result in a significant change of control of a Canadian business or that are likely to be of national significance. In addition, the Act establishes the Investment Review Division, which is in charge of the administration of the Act as well as the evaluation of any foreign investments made in Canada. The primary objective of the Act is to promote investment, economic growth, and employment opportunities in Canada. Additionally, it aims to establish a process for evaluating investments made by non-Canadians that have the potential to compromise Canada’s national security.
(Take note that once Bill C-34 – “An Act to amend the Investment Canada Act” – becomes a law, a non-Canadian investor will have to make a pre-closing filing with the Canadian government for the proposed investment in a sensitive sector that has the potential to impact Canada’s national or economic security even if that investor does not acquire control of the Canadian business.)
The Minister of Innovation, Science, and Economic Development is responsible for the administration of the Act, and the Director of Investments assists them. It is the responsibility of the Minister to carry out general reviews of foreign investments as well as reviews specific to matters of national security. The Minister of Canadian Heritage is responsible for carrying out investigations of cultural organizations. A person may submit a request to the Minister for a binding written opinion on the applicability of the Act, and the Minister is authorized to do so. In addition, the Minister has the authority to publish guidelines and interpretation notes related to the application and administration of the Act, such as the Guidelines on the National Security Review of Investments.
The Investment Canada Act allows for a number of exclusions to its provisions. For instance, acquisitions that are required to be approved under other federal acts, such as the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act, or the Trust and Loan Companies Act, may be exempt from the Act if they are made in connection with the realization of security granted for financial assistance, or if they are made in connection with a corporate reorganization in which the ultimate control of the Canadian business remains unchanged. This exemption is possible because the Act is intended to promote competition among financial institutions. In addition, the Act does not apply to purchases of control of a Canadian company that are made by an agent of the federal or a provincial government or by a Crown entity. These types of acquisitions are exempt from the Act. The Bank Act also includes a number of particular exemptions for certain situations. Last but not least, certain acquisitions of control are exempt from all requirements of the Investment Canada Act, with the exception of those sections pertaining to national security reviews.
Understanding the Investment Canada Act and the review process it establishes is important for any non-Canadian investor looking to do business in Canada, as it sets out the rules and guidelines that must be followed in order to obtain government approval for a foreign investment in the country. The Act allows the government to review foreign investments to ensure that they are of net benefit to Canada and to impose conditions on such investments if necessary. The review process can be complex, and non-Canadian investors must be prepared to provide detailed information about their investment, the target business, and the anticipated impact of the investment on Canada. By understanding the Act and the review process, non-Canadian investors can better navigate the approval process and increase their chances of success in their investment endeavors in Canada.
