New 2014 Investment Canada Act WTO Review Threshold
Industry Canada has announced that the Investment Canada Act (Act) threshold for 2014 that applies to most direct acquisitions of Canadian businesses by non-Canadian investors from World Trade Organization (WTO) member countries is $354 million (an increase from last year’s $344 million threshold). The threshold applies to the gross book value of the target’s assets. Note that under the Act, a non-Canadian includes a Canadian-incorporated entity that is ultimately controlled outside of Canada.
The lower threshold of $5 million continues to apply to direct investments that relate to cultural businesses or where none of the non-Canadian parties comes from a WTO member country.
On a date still to be fixed, new regulations under the Act will come into force, dramatically increasing the $354 million threshold for investors (other than state owned enterprises) from WTO member states to $600 million, $800 million and $1 billion over the next six years, with further increases based on a prescribed formula. When the new regulations come into force, the threshold calculation will be based on ‘enterprise value’, a term still to be finalized.
It is worthwhile to remember that the government is also permitted to review any investment by non-Canadians on the basis of “national security” concerns. No financial threshold applies and the government has up to 50 days, following either notification or the filing of an application for review/approval, to issue notice of a potential national security review. Therefore, if a proposed transaction that is not otherwise subject to approval raises national security concerns, parties should consider filing a notification as early as possible in order to obtain pre-merger clearance (or at least trigger the review period prior to closing).