Investment Canada Act Update

Review Thresholds

This month the Canadian Parliament passed amendments to the Investment Canada Act that will, when in force, introduce different review thresholds for private investors and state-owned enterprise (SOE) investors. The threshold for private-sector investors will be increased (over time) to C$1 billion in enterprise value from the current C$344 million asset value threshold. The C$344 million threshold will be retained for SOE investors. According to recent media reports, the Canadian government is also prepared to amend the Act again to permit private-sector investors from the European Union to benefit from a higher C$1.5 billion threshold as part of a potential Canada-EU Free Trade Agreement. The move to a higher enterprise value test for most investors is likely to reduce the overall number of transactions reviewed annually (last year there were 20). However, the introduction of different thresholds for EU and SOE investors is likely to have little impact on the number of transactions otherwise caught by the Investment Canada Act. Few EU investor transactions are likely to fall between the C$1 billion and the C$1.5 billion thresholds and most SOE acquisitions are likely to be well above either of these thresholds.

SOE Investments

The amendments will also introduce a broadly worded definition of SOE that includes entities controlled or influenced, directly or indirectly, by foreign governments or agencies. The government will also be able to deem that an entity is an SOE in fact or deem that there has been an acquisition of control. These changes will make it difficult for investors to determine definitively whether or not they are an SOE when a foreign government has a minority ownership interest. Similarly, it will be difficult to determine with certainty—as is now the case—whether or not there has been an acquisition of control and whether a transaction is subject to review.

Substantively, the government will consider two important factors when assessing whether an SOE investment satisfies the “net benefit to Canada” approval test. It will consider the extent to which the foreign government that controls the SOE is likely to exercise influence over the Canadian business in practice and, more generally, the extent to which an industry sector is under SOE control. An SOE that operates in a transparent and commercial manner is more likely to have an investment approved than one that does not. Similarly, the government will be more receptive to acquisitions of businesses in industries not dominated by SOEs. The government has already signalled that SOE acquisitions of oil sands businesses will not be permitted because of the extent of indirect foreign state control in the sector. Although minority investments in oil sands businesses are still being welcomed and no other industry sectors have been flagged by the government as areas of potential concern, there is a real risk that this policy will have a chilling effect on foreign investment. The policy is also problematic for SOE investors and other investors that currently have oil sands investments. For instance, it may be difficult for SOE investors to exercise right of first refusal provisions in current joint venture arrangements. The range of potential buyers for oil sands businesses for those seeking to sell their interests has also been narrowed. Marathon Oil Corp., Murphy Oil Corp., Athabasca Oil Corp., ConocoPhillips Co., Koch Industries Inc. and others have all reportedly shelved plans to seek buyers or partners for oil sands projects, although it is difficult to determine the extent to which restrictive Investment Canada Act policies, as opposed to other factors, were responsible.

National Security Reviews

Recent media reports have indicated that national security concerns—another emerging foreign investment issue—were the reason why, earlier this month, Russian-controlled VimpelCom Ltd. withdrew its Investment Canada Act application to acquire Toronto-based wireless carrier Wind Mobile Canada. Canadian officials were reportedly hesitant to approve the acquisition because it would effectively give a Russian entity control of Wind’s network infrastructure, which was built by Chinese telecom company Huawei Technologies Co. Ltd. The US-based telecoms company Verizon Communications Inc. has since made a C$700 million bid for Wind Mobile Canada.

Since 2009, the government has been able to review virtually any investment in Canada, regardless of size, that could be injurious to Canada’s national security. The term “national security” is not defined in the Investment Canada Act and can be broadly interpreted. In practice, the review powers are normally invoked only for transactions with military or strategic significance, potentially involving critical infrastructure, and based on factors that would include the identity of the buyer and the nature of the target’s business operations. It is believed that, prior to VimpelCom’s decision to withdraw its application, there was at least one rejection of an investment under the Act’s national security provisions.

Little public information is available on national security reviews conducted to date, but they are understood to be infrequent. That said, the government clearly seems to be using these powers to review and reject investments, in some cases for investments that are not otherwise reviewable. This practice makes upfront risk assessment an important part of transaction planning.


This update is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this bulletin with you, in the context of your particular circumstances.

For permission to republish this bulletin or our other publications, contact Janelle Weed.

© 2013 by Torys LLP.
All rights reserved.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2021 by Torys LLP.
All rights reserved.