CHAPTER 08 Investment Canada Act and Other Restrictions on Foreign Ownership
WHO IS A “NON-CANADIAN”? – A “non-Canadian” is an individual, government, government agency or entity that is not a “Canadian.” An individual is a “Canadian” for the purposes of the ICA if the person is a Canadian citizen or a permanent resident of Canada who has been ordinarily resident in Canada for not more than one year after first becoming eligible to apply for Canadian citizenship. – The rules for determining whether a corporation is a Canadian under the ICA are complex but essentially require a determination of whether the individuals who are the ultimate controlling shareholders of the corporation are “Canadians.” When shares in a corporation are owned by a partnership, joint venture or certain trusts, the ICA may deem such shares to be owned by the partners, joint venture members or beneficiaries, respectively. This “look through” principle does not apply to shares owned by corporations. – Determining whether shareholders are Canadian may be practically impossible in the case of a widely held corporate investor, in which case the determination may be based on the citizenship or permanent resident status of the members of the investor’s board of directors. In this case, a corporation would be “Canadian” only if it is not controlled in fact by a non- Canadian (or a voting group of non-Canadians) through ownership of its voting shares, and at least two-thirds of the members of its board of directors are Canadians. An equivalent rule applies to limited partnerships whereby a widely held limited partnership is “Canadian” if it is not controlled in fact by a non-Canadian (or a voting group of non-Canadians) through ownership of its limited partnership interests, and at least two-thirds of its general partners are Canadians. – The ICA also contains additional rules for determining whether partnerships and trusts are “Canadian.” – In the context of NSRs, investments by state-owned enterprises or acquisitions of cultural businesses, the Minister may determine an entity that otherwise qualifies as a Canadian to be a non-Canadian if it is controlled in fact by non-Canadians. WHAT CONSTITUTES A “CANADIAN BUSINESS” OR A “CANADIAN-LINKED ENTITY”? – The term “Canadian business” is defined in the ICA to mean a business carried on in Canada that has (i) a place of business in Canada; (ii) an individual or individuals in Canada who are employed or self-employed in connection with the business; and (iii) assets in Canada used in carrying on the business. The term “business” is, in turn, defined to include any undertaking or enterprise capable of generating revenue and carried on in anticipation of profit. – The NBR process applies only to acquisitions of control of Canadian businesses by non- Canadians. The NSR framework, on the other hand, may apply more broadly to not only an acquisition of control of a Canadian business, but also to any acquisition “in whole or in part” of an entity that carries on all or any part of its operations in Canada and has (i) a place of
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