A transfer tax is payable in most provinces on any acquisition of real property. There is no such tax in Alberta, Saskatchewan, Newfoundland and Labrador, and the Territories, however, each of these provinces and the Territories do levy some form of registration fee on the transfer of real property.
In British Columbia, the general rate is 1% on the first CA$200,000 of the fair market value of the property and 2% on the balance of the fair market value of the property, subject to possible exemptions for first time home buyers.
In Manitoba, the general rate is 0% on the first CA$30,000 on the fair market value of the property, 0.5% on the fair market value of the property that exceeds CA$30,000 without exceeding CA$90,000, 1% on the fair market value of the property that exceeds CA$90,000 without exceeding CA$150,000, 1.5% on the fair market value of the property that exceeds CA$150,000 without exceeding CA$200,000, and 2% on the fair market value of property that exceeds CA$200,000.
In Nova Scotia, the land transfer tax, (“deed transfer tax”), payable on the sale price depends on the municipality in which the property is located. The applicable rate ranges from 0% to 1.5%, the latter being the maximum allowed by law.
In New Brunswick, the land transfer tax payable is 0.5% of the assessed value of the property, or consideration for the transfer, whichever is greater. The tax is payable at the time a deed is tendered for registration.
In Ontario, the general rate is 0.5% on the first CA$55,000 on the value of consideration of the property, and 1.0% on the value of consideration that exceeds CA$55,000 without exceeding CA$250,000. An additional tax of 0.5% (i.e. 1.5%) is payable on that portion of the value of consideration that exceeds CA$250,000. If the value of the consideration exceeds CA$400,000, and the land contains at least one and not more than two single family residences, an additional 0.5% tax (i.e. 2%) applies to the value of the consideration that exceeds CA$400,000. It should be noted that there are exceptions available for first time home buyers. The City of Toronto levies an additional land transfer tax, also subject to possible exemptions for first time home buyers.
In Prince Edward Island, the tax is computed at the rate of 1% of the greater of the consideration for the transfer and the assessed value of the real property. The tax is payable when the deed is tendered for registration. First time home buyers are exempt from payment of the real property transfer tax.
The tax in Quebec is computed on the highest consideration paid, the consideration agreed for, or the fair market value of the property. This tax is payable upon the registration of the transfer of the property.
Canada's trading regime
Canada, by necessity, facilitates one of the most liberal trading environments in the world. Although an ardent
supporter of the World Trade Organization (“WTO”), since the Doha Round of negotiations at the WTOfaltered, Canada has pursued an ambitious strategy to expand its network of bilateral and regional trade agreements. Thus, Canada offers an ever -expanding positive trading environment, presenting market access and other trade liberalizing opportunities that can be exploited. However, certain obligations undertaken in various trade agreements also place limits on the laws and regulations governing not only Canada’s trading regime, but also many domestic laws and regulations.
Implementation of Canada’s international obligations
International obligations entered into by Canada, such as those contained in trade agreements, are not automatically incorporated into domestic law. Canada’s international obligations are incorporated into the domestic legal structure by the passage of specific implementing legislation, which will contain provisions to amend existing legislation as required. Individuals can only enforce obligations in Canada as they are implemented into domestic law.
Implementation of international obligations may require the cooperation of the provinces. Canada is a federal state where treaty-making power is vested in the federal government. Although the power to enter international treaties is exclusive to the government of Canada, the ability to implement obligations undertaken is necessarily limited by the division of powers between the federal government and the provinces, as set out in the Constitution Act (Canada) See the discussion under the heading constitutional system.” If an obligation affects a matter that belongs exclusively to the provinces, compliance will require the province to pass implementing legislation. Given the wide breadth of provincial powers, compliance with international obligations may not be within the federal government’s control. Regardless of whether failure to adhere to an international obligation occurs at the federal or the provincial level, only the federal government can defend Canada in an international forum.
The World Trade Organization (WTO)
Canada, in addition to the majority of other nations in the world, is a member of the WTO. The purpose of the WTO is to foster a multilateral trading environment by establishing global rules to ensure that trade flows as smoothly, fairly and predictably as possible. The basic premise of the WTO is non-discrimination. Thus, most of the agreements administered by the WTO are founded on the core non-discrimination principles of most favored nation status (MFN) and national treatment.
The agreements administered by the WTO cover many areas related to trade and investment in a member’s territory. In addition to the more commonly known agreements covering trade in goods and services, Canada has undertaken certain obligations related to such things as the procurement process, protection of intellectual property rights, subsidies, standards and agriculture.
To facilitate further trade liberalization, the WTO permits members to depart from the core concept of MFN and enter into regional preferential agreements. Canada has availed itself of this right and has entered into numerous international trade agreements.
The North American Free Trade Agreement
The North American Free Trade Agreement (“NAFTA”) defines Canada’s most comprehensive trading relationship. It complements and expands upon the overriding international trade rules established under the WTO and governs trade relations as between Canada, the US and Mexico. The NAFTA was built upon the framework of the Canada-US Free Trade Agreement by adding Mexico to the trading area, creating new specialized rules of origin and content requirements, ensuring protection for intellectual property rights, and linking environmental and labor market regulation to trade issues. The NAFTA also facilitates the trading relationship by providing privileged access to each member’s country by business and professional persons.
Although the NAFTA covers many areas of trade and investment, the bulk of the Agreement is focused on trade in goods. Rules of origin particular to the NAFTA are established for each specific good. These rules ensure that preferential tariff treatment is only accorded to goods produced, substantially transformed or whose major component is produced in the free trade area, inducing economic activity within the area.
In addition to dealing specifically with trade in goods, the NAFTA also addresses trade in services, customs procedures and specific obligations related to such matters as energy, the automotive sector, agriculture, textiles, technical barriers to trade, government procurement, intellectual property and investment. Further, the NAFTA provides preferential status for its parties in anti-dumping and safeguard proceedings. In addition, Chapter 19 of the NAFTA contains a mechanism for private parties involved in anti-dumping and countervailing duty investigations, to bring a party’s decision in front of a bi-national review mechanism. The NAFTA’s Chapter 11 contains investment rights and protection for investors from both discrimination and government measures that are tantamount to expropriation. This Chapter provides rights that are enforceable by investors directly through international arbitration.
Bilateral and regional trade agreements
Although a proponent of free trade, Canada has, until recently, lagged behind its trading partners in negotiating a network of bilateral and regional trade agreements. In 2007, Canada enunciated a “Global Commerce Strategy”, which signaled a re-invigoration of its efforts to engage in bilateral and regional trade negotiations as a means of securing Canada’s growth and prosperity. This strategy continues to be a key plank in the current government’s economic plan to maintain Canada’s comparative global advantage. In addition to the NAFTA, Canada is currently a party to preferential trade agreements with the following countries;
a. Colombia (in force as of August 15, 2011)
b. Peru (in force as of August 1, 2009);
c. The European Free Trade Association (in force as of July 1, 2009);
d. Costa Rica (in force as of November 1, 2002);
e. Chile (in force as of July 5, 1997)
f. Israel (in force as of January 1, 1997)
g. Panama (in force as of April 1, 2013)
h. Jordan (in force as of October 1, 2012)
i. Honduras (signed November 5, 2013 – not yet in force)
In March 2014, Canada also concluded a comprehensive agreement with South Korea. Implementation legislation is expected to be adopted shortly. Canada has also announced an agreement in principle with the European Union on a much anticipated comprehensive Economic and Trade Agreement between Canada and the EU. However, a final, signed agreement has not yet been concluded.
Canada is currently at various stages of pursuing preferential trading arrangements with Morocco, Korea, the Andean Community, the Caribbean Community (CARICOM), the Dominican Republic, the Central Four American Countries (El Salvador, Guatemala, Honduras and Nicaragua), Singapore, India, Japan, Singapore and Ukraine. Canada is also actively engaged in the negotiation of the Trans-Pacific Partnership.
The scope of Canada’s trade agreements and negotiations vary from comprehensive to merely incorporating the substantive obligations of the WTO with laudatory language regarding future negotiations. While all of Canada’s recent trade agreements address such issues as investment, the environment and labor standards, the manner by which these obligations are imposed, differ from agreement to agreement. Negotiations with the European Union are aimed at increasing the scope of Canada’s trade agreements beyond traditional market access issues to include areas such as competition, mutual recognition of professional services, small and medium-sized enterprises, and science and technology. As a result of the larger scope of these negotiations, at the request of the European Union, for the first time, the provinces and territories are direct participants in the negotiations where they relate to areas under their competencies.
Foreign investment protection and promotion agreements
In addition to entering into and negotiating free trade agreements, some of which, like the NAFTA, contain specific obligations pertaining to investor protection, Canada has also been very active in negotiating agreements that specifically promote and protect foreign investment through legally binding obligations. Canada has executed Foreign Investment Protection and Promotion Agreements (“FIPAs”) with 30 countries (three of these are signed but not yet in force). In addition, Canada has concluded negotiations with an additional 11 countries and has ongoing negotiation with 12 other countries. Although Canada’s original FIPAs are based on the Organization for Economic Co-operation and Development (OECD) model, the bulk of Canada’s FIPAs were entered into after 2003 and are modeled on the more comprehensive NAFTA model. These later agreements include a more mature and comprehensive investor-state dispute mechanism.
Import and export considerations
In addition to the various forms of commodity taxes previously discussed, firms importing goods into Canada are required to pay customs duties, as well as abide by a number of federal laws which regulate customs procedures, quotas, product standards and labelling requirements within Canada. See also the section titled “Federal consumer product and labelling standards”.
Companies contemplating Canada for manufacturing/exporting purposes are also subject to certain regulations, including reporting requirements. Further, certain goods are subject to export controls, including all goods imported from the US that are not substantially transformed in Canada. There are quasi-criminal offenses for failure to comply with these obligations.
In addition to specific long standing legislative deterrents, Canada has implemented the Administrative Monetary Penalty System (AMPS). AMPS is a civil penalty regime designed to secure compliance with Canada’s import and export obligations. AMPS provides for a monetary penalty to be levied for a violation of obligations related to either importing to, or exporting from, Canada, as set out in three pieces of federal legislation: the Customs Act, the Customs Tariff and the Special Import Measures Act, and the regulations promulgated thereunder. The scheme is designed so that the level of penalty increases each time an importer or exporter repeats an infraction.
The amount of customs duties levied on the importation of goods into Canada is calculated by reference to their classification and applicable duty rate set out under the List of Tariff Provisions in the Schedule to the Customs Tariff. The duty rate is calculated upon the value for duty, which is determined in accordance with the Customs Act.
As a signatory to the International Convention on the Harmonized Commodity Description and Coding System, the classification of goods for customs duty purposes in Canada generally follows the classification and rules used by most countries. The List of Tariff Provisions in the Schedule to the Customs Tariff is divided into 99 chapters and contains a comprehensive list of goods intended to cover the range of all possible products that could be imported into Canada (“Tariff Schedule”). The correct classification of goods is a critical first step in determining the amount of customs duties payable upon importation.
Origin – the applicable rate of duty
Canada applies different duty rates (preferential and non-preferential) to the same goods on the basis of their origin. The origin of goods is usually determined by reference to where they are manufactured, grown or extracted. For goods originating from most countries, the Most Favored Nation (“MFN”) rate of duty will apply. For goods that qualify as originating from a country with which Canada has a trade agreement, the rules and rates arising from that specific agreement will apply.
In addition, Canada has unilaterally instituted preferential tariff treatment for certain groups of countries, such as Least Developed Country Tariff. Where goods qualify as “originating goods” under such agreements or preferential treatment, lower duty rates typically apply. Preferential and non-preferential duty rates are set out for each tariff item in the Tariff Schedule to the Customs Tariff.
The valuation of goods imported into Canada is governed by the Customs Act and regulations passed thereunder. Value for duty determinations establishes the basis upon which customs duties are levied. In the vast majority of cases, customs duties on goods imported into Canada will be calculated on the basis of their “transaction value”. The “transaction value” is the price paid or payable for the goods that are exported to a purchaser in Canada, subject to a number of adjustments, which take into account factors such as royalties, the costs of shipping, transportation and commissions. Where a price cannot be determined on the basis of the transaction value, the Customs Act provides for other methods of valuation to be used, including the transaction value of identical or similar goods, deductive or computed (“cost-plus”) value.
Anti-dumping and countervailing duties
Certain products may be subject to anti-dumping or countervailing duties at the border. These duties are levied pursuant to the Special Import Measures Act (SIMA), which establishes certain procedures for the imposition of anti-dumping duties for goods exported to Canada at prices below home market prices or below the total cost of production, and for countervailing duties where goods sold to Canada are subsidized by the exporting country. These procedures are available to domestic producers to protect them from unfair import competition.
Anti-dumping and countervailing duties are additional charges imposed on the goods, over and above standard tariffs. These additional duties can only be imposed once a proper inquiry has taken place.
SIMA is administered by the Canada Border and Services Agency (CBSA), which investigates complaints, makes dumping determinations and enforces duties imposed under the legislation and by the Canadian International Trade Tribunal, an independent quasi-judicial tribunal that adjudicates the question of whether dumped or subsidized imports have materially injured or will materially injure Canadian producers.
In its 2012 Economic Action Plan, the Government of Canada announced its intention to consolidate Canada’s trade remedy investigation function into one organization, under the CITT. This would be achieved by way of legislation. However, any further details on this consolidation (including timeframes for implementation), have yet to be announced.
Customs duty relief
Relief from the payment of customs duties is available through a number of mechanisms designed to promote trade and support Canadian industries. CBSA’s drawback, duties relief and remission programs may be used to reduce, eliminate or defer the payment of customs duties on certain goods.
The drawback program allows certain importers to obtain full or partial drawback (refund) on customs duties paid on goods that were imported for use in the manufacturing of goods in Canada, that are subsequently exported. Additional drawbacks are available in respect of goods imported for specified purposes.
There is additional relief in respect of imported goods that are damaged, and goods that are imported and used as manufacturing inputs.
As well, numerous remission orders are granted in favor of specific goods or producers. As well, numerous remission orders are granted in favourfavor of specific goods or specific producers. Canadian customs law permits duties on certain imported goods to be refunded to specified businesses, on condition that these firms meet certain performance requirements related, for example, to production, exports or employment. These are known as “remissions”, which can be full or partial waivers of duty and/or taxes, on a permanent or temporary basis, and can be enacted to apply to particular products, industries or companies. In addition to pre-existing remission orders, there are various legislative provisions that allow an importer to apply for remission orders.
Persons who produce, package, store, transport or sell spirits, beer, tobacco and related products, are regulated by the Excise Act, 2001, which levies a special form of tax called excise duties. Some of these goods are subject to a duty under the Customs Tariff, in place of the excise duty, when imported to Canada. Exemptions from excise taxes are available under certain circumstances.
Packaging and labelling
Prepackaged goods sold in Canada are subject to federal and provincial packaging and labelling requirements. The Consumer Packaging and Labelling Act sets out general obligations with respect to the type of product company information that must be displayed, as well as bilingual labelling requirements. Additional requirements for goods, such as drugs, foods and textiles, are imposed under the Food and Drug Act and the Textile Labelling Act. Issues relating to misleading consumer information are dealt with under the federal Competition Act and various provincial consumer protection statutes. Finally, additional labelling and packaging obligations are imposed under the Canadian Consumer Protection Act, the Hazardous Products Act, the Quebec Charter of the French Language, and under regulations passed pursuant to trade agreements, such as the NAFTA. For more information, see the discussion under the heading “Federal consumer product and labelling standards.”
In addition, there may be other product specific requirements that attach to specific imports. These requirements are administered by a variety of government departments pursuant to related statutes and are enforced at the border by the CBSA.
The importation of goods into Canada can be restricted for international reasons, such as human rights, embargoes, conservation or to protect domestic industries subject to Canada’s international obligations. In addition, certain goods require import permits for monitoring purposes. Pursuant to the Export and Import Permits Act (“EIPA”), goods that appear on the Import Control List may not be imported into Canada unless an import permit is acquired. The goods on this List include clothing and textiles for which Canada has entered into bilateral restraint agreements with certain countries. Such bilateral restraint agreements restrict the quantity of imports of these goods, usually through the establishment of export quotas. Import permits will only be granted if the exporter has an export quota and an export license. The importation of certain other goods, such as firearms, steel and animal and agricultural products, are also on the List as a result of regulation pursuant to other specific legislation. Other products such as drugs and plants are subject to import controls under product specific legislation.
Canada’s export controls are designed to prohibit or limit the export of strategic goods and technologies to unstable or unfriendly countries, or to countries where governments have a poor human rights record, through a permit system. Under the EIPA, the export from Canada of goods specified in the Export Control List, and all exports from Canada to certain countries specified in the Area Control List, require an exporter to obtain a Canadian Export Permit to lawfully export. The relevant country for Canadian export control purposes is the country in which the exports will ultimately be consumed. Export permits are issued following a written application by the exporter or its agent, and satisfactory review thereof by the Export and Import Control Bureau of the Department of Foreign Affairs and International Trade. All goods originating in the US that are exported from Canada to any country other than the US also require an export permit to prevent circumvention of US export controls.
The Export Control List consists primarily of: weapons and munitions; nuclear goods, high technology goods, goods having potential military applications and related technical information; cultural goods; lumber and certain agricultural products; US origin goods; and many chemical goods that could be used for either warfare or the production of illegal drugs. The Area Control List consists of countries that Canada has determined to be hostile. Currently, Belarus and North Korea are the only countries on the Area Control List.
Often, to export a good, a General Export Permit is available, which can be used without an application. If one is not available, then specific application for an export permit must be made. Depending on the strategic importance of the controlled goods or the destination country, an export permit application may be refused or granted, subject to a provision of an import or end use certificate, or a delivery verification certificate. In some instances, multiple shipment and multiple consignee permits may be available.
Through the Defence Production Act and the creation of the Controlled Goods Directorate, Canada has implemented the Controlled Goods Program (“CGP”). The CGP is a registration system designed to control the examination, possession and transfer of goods and related technology defined as “controlled goods” within Canada. Controlled goods are defined in relation to Canada’s Export Control List and include military, nuclear weapon-related and missile technology-related goods. Failure to register under the CGP, where required, can result in civil or criminal penalties, including imprisonment.
Canada implements various international economic sanctions in an effort to bring about a change in behavior of specific states or individuals. Canada principally implements these sanctions through two acts: the United Nations Act and the Special Economic Measures Act.
The United Nations Act is the legislative vehicle by which Canada gives effect to decisions passed by the United Nations Security Council. Canada implements its specific United Nations (UN) obligations into Canadian law by adopting regulations pursuant to this Act. For the most part, the sanctions implemented are directed towards specific countries, and may establish an embargo against certain goods or impose an asset freeze. There are currently a number of countries against which Canada has imposed such measures. These measures also impose restrictions against engaging in enumerated activities with designated persons.
Further, following September 11, 2001, the UN implemented a resolution directed specifically at identified individuals. The United Nations Suppression of Terrorism Regulations place a freeze on the dealing of property with listed persons, and impose an ongoing duty on Canadian financial institutions to determine and report monthly whether they are in possession or control of the property of a listed person.
The Special Economic Measures Act (SEMA) authorizes the Canadian Government to impose sanctions on foreign states, either of its own accord or as a result of an obligation undertaken in an international organization other than the UN (for example, NATO). The sanctions imposed by SEMA can be very far reaching and go beyond merely the control of imports and exports. Currently, there are SEMA sanctions in place in Libya, Myanmar (Burma), North Korea, Iran, Russia, Syria, Ukraine and Zimbabwe.
Foreign Extraterritorial Measures Act
The Foreign Extraterritorial Measures Act (FEMA) was enacted to counter certain countries’ attempts to apply their laws extraterritorially. It is largely an enabling statute to protect Canadian interests against foreign courts and governments. FEMA authorizes the Attorney General to make orders relating to measures of foreign states or foreign tribunals affecting international trade or commerce.
The Attorney General has only issued one order under FEMA, known as the “Cuba Order”. The Cuba Order is directed at extraterritorial measures of the US aimed at preventing trade and commerce between foreign states and Cuba. More specifically, the Cuba Order was issued to address specific US legislation which aims to prohibit the activities of US-controlled entities domiciled outside the US, as they relate to Cuba (e.g. Canadian affiliates of US companies).
The Cuba Order requires every Canadian corporation, and every director and officer of a Canadian corporation, to provide notice to the Attorney General of Canada of any directive, instruction, intimation of policy or other communication relating to an extraterritorial measure of the US in respect of any trade or commerce between Canada and Cuba that the Canadian corporation, director or officer has received from a person who is in a position to direct or influence the policies of the Canadian corporation in Canada. Beyond the notice requirement, the Cuba Order prohibits any Canadian corporation from complying with any extraterritorial measure of the US, or with any directive or other communication relating to such a measure that the Canadian corporation has received from a person who is in a position to direct or influence the policies of the Canadian corporation in Canada.
The result of these two jurisdictions’ competing legislation is conflicting and unless properly managed, can result in legal liability for both individuals and corporations.
The Competition Act – Canada’s antitrust legislation
Canada’s competition legislation is embodied in the Competition Act. Its purpose is set out in the Act as follows:
The purpose of this Act is to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices.
The Competition Act provides for the review of certain matters by the Competition Tribunal on application by the Commissioner of Competition or, in some cases, by private parties. Reviewable matters include mergers and restrictive trade practices, such as refusal to deal, resale price maintenance, exclusive dealing, tied selling, market restriction and abuse of dominant position. In addition, the Competition Act defines a number of activities which constitute criminal offenses, including conspiracy, bid-rigging, deceptive marketing, deceptive telemarketing, and serious instances of deliberate or reckless misleading advertising. These matters are prosecuted by the Director of Public Prosecutions in the courts. Private parties may bring civil actions to recover damages suffered as a result of conduct which violates the criminal provisions of the Competition Act, or which constitutes a failure to comply with an order of the Tribunal.
The Competition Act is administered by the Commissioner of Competition (“Commissioner”), the head of the Competition Bureau, who has the power to receive formal and informal complaints and to conduct investigative inquiries. The Commissioner also has the primary responsibility for initiating proceedings before the Competition Tribunal.
A. Investigative powers
Once an inquiry has been commenced under the Competition Act, the Commissioner may use a number of different investigative tools, including seeking court orders for oral examinations, production of records, written returns of information, search warrants and, in the case of deceptive telemarketing, bid-rigging and conspiracy, wiretapping. The Competition Act contains provisions that protect the identity of informants and makes it an offense for an employer to take reprisals against employees who report conduct contrary to the Competition Act (whistleblowers).
The Competition Act permits the Commissioner to seek ex parte judicial orders that authorize the oral examination of individuals under oath or affirmation, the compulsory production of documents, and written responses to questions on oath or affirmation. The Commissioner regularly uses these orders in inquiries into both alleged criminal and reviewable conduct, including mergers.
The Commissioner is also permitted to seek ex parte search warrants. Although the Competition Act permits the Commissioner to seek a search warrant for reviewable conduct, search warrants are generally reserved for circumstances where the Commissioner believes that criminal conduct has occurred or will likely occur. Similar to “dawn raids” in other jurisdictions, searches by the Commissioner are typically executed without warning by staff of the Competition Bureau, who may sometimes be assisted by police.
The Commissioner may seek ex parte judicial authorization to intercept private communications (wiretapping) to assist the Commissioner in investigating conspiracies with respect to prices, markets or customers, quantity or quality of production, or channels or methods of distribution, and in investigations of bid-rigging and deceptive telemarketing. In order to obtain such authorization, the Commissioner must convince the court that other investigative powers available to him or her are inadequate to obtain the necessary evidence. The Commissioner requires the consent of one party to wiretap as part of an investigation of all other suspected violations of the Competition Act.
In addition to the powers listed above, the Commissioner may request that a party voluntarily respond to a “Request for Information”. A Request for Information is normally used where the Commissioner has received a complaint and wishes to determine whether a formal inquiry is necessary. It may also be used where an inquiry has been commenced.
B. Written opinions
Pursuant to its Program of Compliance, the Competition Bureau provides its views on proposed actions by businesses in order to assist in compliance with the Competition Act through the use of specific instruments, such as written opinions. These written opinions are binding on the Commissioner if all the material facts have been submitted and these facts are accurate. Written opinions remain binding for so long as the material facts remain substantially unchanged and the practice is carried out substantially as proposed. The Bureau has established turnaround times and fees for written opinion requests. In the case of a request for a written opinion relating to the misleading advertising and deceptive marketing practices sections of the Competition Act the fee is $1,000 plus HST. The maximum turnaround times are two weeks for “non-complex” and six weeks for “complex” requests. The fee for a written opinion request relating to provisions of the Competition Act dealing with conspiracy, bid-rigging, abuse of dominant position, or the new civil review provision relating to non-criminal competitor agreements, is $15,000 plus HST. The maximum turnaround times are six weeks for “non-complex” and 10 weeks for “complex” requests. The fee for a written opinion request relating to notifiable transactions is $5,000 plus HST, with the maximum turn-around times being 14 calendar days for “non-complex” and 28 calendar days for “complex” requests. The fee for a written opinion request relating to all other provisions of the Act is $5,000 plus HST, with the maximum turnaround times being four weeks for “non-complex” and eight weeks for “complex” requests.
The competition tribunal
The Competition Tribunal (“Tribunal”) is comprised of judges of the Federal Court and lay members. The Tribunal hears reviewable practice matters, generally upon the application of the Commissioner. The judicial members alone may determine questions of law, while lay members may join in the determination of questions of fact, or mixed questions of fact and law. Appeals lie to the Federal Court of Appeal.
Any person may, with leave of the Tribunal, intervene in most proceedings before the Tribunal to make representations relevant to those proceedings in respect of any matter that affects that person.
Private parties may seek leave from the Tribunal to launch an application against a party for allegations of refusal to deal, resale price maintenance, exclusive dealing, tied selling and market restriction, where the private party demonstrates a reason to believe that he or she is directly, or substantially, affected in his or her business by the alleged conduct. The Competition Act contains several provisions designed to prevent strategic litigation, including a prohibition on cases proceeding where the Commissioner is investigating or has settled a matter, as well as provisions setting out the ability of the Tribunal to award costs against any party, the right of the Commissioner to intervene in proceedings, and a one-year limitation on the commencement of proceedings from the cessation of the conduct being questioned. Private parties cannot seek compensation for damages from the Tribunal.
The definition of “merger” is very broad in the Competition Act. It means any “acquisition or establishment of control over or significant interest in the whole or a part of a business of a competitor, supplier, customer or other person”. A merger may be effected by means of a purchase or lease of shares or assets, an amalgamation or combination, or a joint venture.
The Commissioner reviews mergers and may apply to the Tribunal for a remedy in respect of a merger he or she views to be anti-competitive. The Tribunal may prohibit a proposed merger, or order full or partial divestiture or dissolution following a consummated merger, if it finds that the merger “prevents or lessens, or is likely to prevent or lessen, competition substantially” in a relevant market. In deciding whether competition would be so affected, the Tribunal is entitled to consider several factors which include:
- The extent of foreign competition faced by the merging parties;
- Whether the business of one of the parties has failed or is likely to fail;
- The extent to which acceptable substitutes to the products of the merging parties are or are likely to become available;
- Any barriers to entry into a market (including tariff and non-tariff barriers to international trade, interprovincial barriers to trade and regulatory controls over entry), and the effect of the merger on such barriers;
- The extent of effective competition remaining post-merger;
- The likelihood the merger may result in the removal of a vigorous and effective competitor; and
- The nature and extent of change and innovation in a relevant market.
The Tribunal is also directed not to find a substantial lessening of competition based only on “evidence of concentration or market share”. This provision is designed to ensure that a mechanistic or arithmetical rule is not developed by the Tribunal in deciding which mergers should be prohibited. Nonetheless, the Merger Enforcement Guidelines issued by the Competition Bureau do set out certain presumptive safe harbors, based on percentage market share that will influence its response to given mergers.
There are two important exceptions to the authority of the Tribunal to prohibit a merger. Firstly, the Tribunal cannot make such an order if the merging parties can demonstrate that there would be efficiency gains from the merger sufficient to offset the effects resulting from any lessening of competition. Secondly, certain joint ventures formed to conduct specific projects or a program of research and development, will also be exempt if certain criteria are met. The most important criterion is that the project or program would not otherwise have been undertaken.
Many of the substantive standards of the merger provisions are couched in economic language which can cause uncertainty in their practical application. Uncertainties arising from the merger criteria can be alleviated somewhat by the ability of merging parties to obtain an Advance Ruling Certificate from the Commissioner, indicating that he or she would not have sufficient grounds to make an application to the Tribunal or a “no-action” letter stating that the Commissioner does not, at that time, intend to challenge the proposed transaction before the Tribunal. In some cases, such requests may become the focus for negotiations between the Commissioner and the merging parties involving conditions which will satisfy the Commissioner that the merger will not result in a substantial lessening of competition. These conditions may be embodied in a consent agreement registered with the Tribunal. As mentioned, the Commissioner has published Merger Enforcement Guidelines that describe the Competition Bureau’s enforcement policy with respect to mergers.
B. Pre-notification of certain transactions
The Competition Act contains compulsory pre-notification requirements for transactions that defined financial thresholds. Similar requirements exist in the merger laws of many jurisdictions, such as the Hart-Scott-Rodino Act in the US. The pre-notification requirements are designed to apply to only a relatively small number of mergers involving substantial business interests.
The two notification thresholds, both of which must be exceeded in order to trigger the notification for requirement, are:
i. Size of the Parties Test: The parties to the transaction, together with their affiliates, must have assets in Canada or annual gross revenues from sales in, from or into Canada, which exceed CA$400 million
ii. Size of the Transaction Test: Differing transactions thresholds apply depending upon the transaction method employed:
- Acquisition of assets: Where a proposed transaction involves the acquisition of assets of an operating business in Canada, notification is required where the aggregate value of the assets to be acquired, or the annual gross revenues from sales in or from Canada generated from those assets, would exceed CA$82 million.
- Acquisition of shares: Where a proposed transaction involves the direct or indirect acquisition of voting shares of a corporation carrying on an operating business in Canada, notification is required where the aggregate value of the assets of such corporation, or the annual gross revenues from sales in or from Canada generated from those assets, would exceed CA$82 million, and the person or persons acquiring the shares, together with their affiliates, would own more than either 20 percent of the voting shares, in the case of a public corporation, or 35 percent of the voting shares, in the case of a private corporation. Where the acquiring party, together with its affiliates, already owns more than 20 percent of the voting shares of a public corporation or more than 35 percent of a private corporation, then notification is required only where the proposed acquisition would result in the acquiring party, together with its affiliates, owning more than 50 percent of the voting shares of the corporation.
- Amalgamation: Where a proposed transaction involves a corporate amalgamation in which one or more of the corporations involved carries on, or controls a corporation that carries on, an operating business in Canada, notification is required if the aggregate value of the assets in Canada of the continuing corporation, or the annual gross revenues from sales in, from or into Canada generated from those assets would exceed CA$82 million and the value of the assets in Canada that would be owned by the continuing corporation that would result from the amalgamation or by corporations controlled by the continuing corporation, other than assets that are shares of any of those corporations, would exceed CA$82 million, or the gross revenues from sales in or from sales in or from Canada generated from those assets would exceed CA$82 million.
- Combination: Where a proposed transaction involves a combination of two or more persons to carry on business otherwise than through a corporation, notification is required if the aggregate value of the assets in Canada that are the subject matter of the combination, or the annual gross revenues from sales in or from Canada generated from those assets, would exceed CA$82 million.
- Acquisition of an interest in a combination: Where a proposed transaction involves the acquisition of an interest in an existing combination that carries on an operating business otherwise than through a corporation, notification is required if the aggregate value of the assets in Canada that are the subject matter of the combination, or the annual gross revenues from sales in or from Canada generated from those assets, would exceed CA$82 million and where, as a result of the acquisition of the interest, the person or persons acquiring the interest, together with their affiliates, would hold an aggregate interest in the combination that entitles them to receive more than 35 percent of the profits of the combination or more than 35 percent of its assets on dissolution or, where the person or persons acquiring the interest are already so entitled, to receive more than 50 percent of such profits or assets.
C. Notification procedure, advance ruling certificate requests, waiting and review periods, and filing fees
Where both the size of parties threshold and the size of transaction threshold are exceeded, all persons who are proposing the transaction are required, before completing the transaction, to notify the Commissioner that the transaction is proposed and to supply the information required under the Competition Act.
In addition, in cases where the parties believe that there will be little or no adverse competitive impact resulting from the transaction, they may instead of, or in addition to, the notification filing, prepare and submit a request for an Advance Ruling Certificate from the Commissioner certifying that there are not sufficient grounds to apply to the Tribunal under section 92 of the Competition Act. The issuance of an Advance Ruling Certificate by the Commissioner exempts the transaction from the notification requirements under the Competition Act. However, regardless of the determination of whether there is significant overlap between the parties to a proposed transaction, the information that would be provided in an Advance Ruling Certificate request would still commonly be provided in a brief or “white paper” accompanying a notification filing, to assist the Competition Bureau in analyzing the competitive impact of the transaction in Canada. A notifiable transaction may not be completed until after the expiry of a 30-day statutory waiting period, unless the Commissioner grants an earlier termination. The Commissioner may, within the 30-day period, require additional information, (commonly called a Supplementary Information Request (“SIR”), from applicants.
In this instance, the initial 30-day review period is extended to 30 days from the date on which all the SIR information has been provided to the Commissioner.
The Tribunal may issue an interim order of short duration (generally up to 30 days, with the possibility of an extension to 60 days) prohibiting completion or implementation of a merger where the Commissioner requires additional time to complete his or her inquiry, and where the Tribunal finds that action may be taken in the interim which would substantially impair the ability of the Tribunal to remedy the effect of the proposed merger on competition.
The Commissioner’s review of a transaction may extend beyond the applicable waiting period, particularly where the transaction involves competitive overlap between the businesses of the parties. The Competition Bureau has published non-binding service standards for the review of notifiable transactions and preparation of Advance Ruling Certificates for mergers, with maximum turnaround times determined by the complexity of the transaction. The maximum turnaround times are 14 calendar days for “noncomplex”,” and 45 calendar days for “complex” transactions, except where the SIR is issued, in which case it will be 30 calendar days commencing the day on which the Commissioner has received a complete response to the SIR from all SIR recipients. The Bureau has provided guidance on its interpretation of “non-complex” transactions. The Competition Bureau requires a CA$50,000 filing fee for notifiable transactions. Where an advance ruling certificate is requested, the fee is CA$50,000. Where both a notification and an advanced ruling certificate are requested, the fee is also CA$50,000. Where both a notification and an advanced ruling certificate are submitted with respect to the same proposed transaction, only one filing fee of CA$50,000 is required. While parties to a transaction are not prohibited from closing after the expiry of the statutory waiting periods (unless the Tribunal has issued an interim order preventing closing), they do so at their own risk.
Upon completion of the Commissioner’s review of a transaction, he or she may decide to:
i. Challenge the transaction, ultimately before the Tribunal if the parties insist on proceeding with the transaction without addressing the Commissioner’s concerns;
ii. Issue a “no-action” letter indicating that the Commissioner does not, at that time, intend to make an application under section 92 of the Competition Act in respect of the proposed transaction; or
iii. Issue an Advance Ruling Certificate which bars the Commissioner from challenging the transaction, provided that the facts were accurately represented to the Commissioner by the parties. While a no-action letter does not legally prevent the Commissioner from challenging a transaction, the receipt of a no-action letter is commonly considered a satisfactory closing condition in merger transactions.
It is common where an Advance Ruling Certificate is being requested without a formal notification, to request, as an alternative, a no-action letter and a waiver of the obligation to notify the Commissioner and supply information.
It is important to note that, even if a transaction does not trigger the merger notification provisions under the Competition Act, it may be reviewed by the Commissioner under the substantive provisions in the Act, referred to above, relating to mergers which substantially lessen competition, up to one year after closing.
D. Exemptions from pre-notification
There are a number of exemptions from the pre-notification requirements. All transactions between affiliated parties are exempt, as are those transactions where the Commissioner has issued an Advance Ruling Certificate. Also exempt from the pre-notification requirements are:
i. Acquisitions of real property or goods in the ordinary course of business, if the acquiring person or persons would not hold all or substantially all of the assets of an operating segment of a business;
ii. Acquisitions of voting shares or of an interest in a combination solely for the purpose of underwriting the shares or the interest;
iii. Acquisitions of voting shares or of an interest in a combination where the acquisition would result from a gift, intestate succession or testamentary disposition;
iv. Acquisitions resulting from foreclosures by a creditor in the ordinary course of business;
v. Acquisitions of certain Canadian resource property where the acquirer intends to carry out exploration or development activities;
vi. Asset securitization transactions; and
vii. Certain limited classes of joint ventures.
Certain mergers in Canada may be subject to requirements outside the Competition Act provisions. For example,
financial institution mergers may be subject to approval of the federal Minister of Finance, and transportation sector mergers and acquisitions may be subject to merger review under the Canada Transportation Act.
Additional posts from the blog
CASL also prohibits installing a “computer program” – including an app, widget, software, or other executable data – on a computer system (e.g. computer, device) unless the program is installed with consent and complies with disclosure requirements. The provisions in CASL related to the installation of computer programs will come into force on January 15, 2015.
On April 7, 2014, the Minister of the Environment issued a Notice with respect to hydrofluorocarbons (the “Notice”), pursuant to the Canadian Environmental Protection Act, 1999. The Notice imposes reporting requirements on those who imported, exported, or manufactured certain hydrofluorocarbons (“HFCs”) from 2008 and 2012. A non-exhaustive list of HFCs subject to these reporting requirements can be found in Schedule 1 of the Notice.
In an interesting decision, the Human Rights Tribunal of Ontario has ruled that an employer is not liable for discriminatory and harassing texts sent by a rogue employee to another of its workers.