The Canadian government has announced that the financial thresholds for pre-closing net benefit review of foreign investments in Canada under the Investment Canada Act (the “ICA”) have been lowered for 2021.
The ICA contains thresholds above which foreign investors in Canadian businesses have to obtain federal government approval prior to closing. The approval process can take several months, although timing is typically case specific.
The federal government adjusts these thresholds annually based on growth in nominal GDP. The impact of COVID led to a decline in Canadian GDP over this past year, reducing the applicable thresholds under the ICA.
The threshold for direct acquisitions of control by WTO investors has been lowered to $1.043 billion from $1.075 billion. The threshold for direct acquisitions by trade agreement investors (including investors from the United States and the European Union) has been lowered to $1.565 billion from $1.613 billion. Finally, the threshold for state-owned WTO investors has been lowered to $415 million from $428 million.
While these thresholds are still high enough that the vast majority of foreign investments will not be subject to pre-closing review, the reduction in the thresholds may mean that a number of transactions in 2021 may now be subject to pre-closing review where they would not have been in 2020.
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