Some things change, some things stay the same…again: 2023 Investment Canada Act thresholds increase, Competition Act thresholds unchanged

The threshold for certain pre-closing net benefit reviews under the Investment Canada Act (ICA) and the threshold for a pre-closing merger notification under the Competition Act have been updated for 2023. 

For the second year in a row, the Minister of Innovation, Science and Economic Development (the minister), has announced that the threshold for pre-closing merger notifications under the Competition Act will not change this year; the transaction-size threshold will remain C$93 million. Meanwhile, the thresholds for certain pre-closing net benefit reviews under the ICA were increased.

Historically, the Competition Act merger notification thresholds have been adjusted annually based on GDP. The decision not to adjust the notification thresholds for the second year running reflects the federal government’s ongoing commitment to increase competition through a robust enforcement framework and to ensure the Competition Bureau can fully scrutinize potentially harmful transactions.

Competition Act

Under the Competition Act, the requirement to file a pre-merger notification is based on both the size of the transaction itself and the size of the parties to the transaction. 

Under this two-part test, the first step assesses the size of transaction to determine if the value of the assets in Canada or the annual gross revenue from sales (generated from those assets) in or from Canada of the target operating business (and, if applicable, its subsidiaries) is greater than C$93 million. To satisfy the second step of the test, the parties, including their affiliates, must have aggregate assets in Canada or annual gross revenues from sales in, from or into Canada, in excess of C$400 million. 

Unlike the transaction-size threshold, however, the minister has no discretion in adjusting the filing fee merging parties are required to pay for notifiable transactions. The filing fee, which is currently $77,452.36, is expected to be adjusted for inflation in April.

Investment Canada Act

Under the ICA, any acquisition by a “non-Canadian” of control of a “Canadian business” is generally either notifiable or reviewable by the federal government. Whether an acquisition is notifiable or reviewable depends on whether the Canadian business is acquired directly or indirectly, as well as the value and nature of the Canadian business being acquired.

Before the federal government allows a reviewable transaction to close, it must be satisfied that the transaction “is likely to be of net benefit to Canada.” Notifiable transactions, however, require only that the investor submit a filing, which can be made up to 30 days post-closing. Independent of the net benefit review thresholds, the ICA also has a national security review (NSR) regime, which permits the government to review any investment in a Canadian business by a non-Canadian (including minority investments, as well as the formation of a new business).

Net benefit review thresholds

Direct acquisitions of control of a Canadian business by investors controlled from countries with which Canada has a free trade agreement (trade agreement investors) that are not state-owned enterprises (SOEs) will generally be subject to pre-closing review where the enterprise value¹ of the Canadian business exceeds C$1.931 billion (up from C$1.711 billion in 2022). This threshold also applies where the Canadian business being acquired was, immediately prior to the investment, controlled by a trade agreement investor.

Direct acquisitions of control of a Canadian business by investors controlled from WTO member countries (WTO investors) that are not SOEs and not trade agreement investors will generally be subject to pre-closing review where the enterprise value of the Canadian business exceeds C$1.287 billion (up from C$1.141 billion in 2022). This threshold also applies where the Canadian business being acquired was, immediately prior to the investment, controlled by a WTO investor.

Direct acquisitions of control of a Canadian business by an SOE controlled from a WTO member country will generally be subject to pre-closing review where the Canadian business has assets with a book value of C$512 million (up from C$454 million in 2022).

The net benefit review threshold for investments by non-WTO investors, or for the direct acquisition of control of a cultural business (regardless of the buyer’s nationality) is C$5 million in book value. The threshold for an indirect acquisition of control is C$50 million in asset value ($5 million in certain instances). These thresholds have not changed.

National security review regime

The ICA contains an NSR regime that can apply to any investment by a non-Canadian (including acquiring minority interests or creating a new Canadian business) that the federal government believes “may be injurious to national security.” In light of the global COVID-19 pandemic and ongoing concerns about foreign economic influence, the government has expanded the scope of the business sectors and activities that may raise national security concerns, including Canada’s critical infrastructure or critical minerals and critical mineral supply chains.²   

In August 2022, the federal government introduced a voluntarily notification regime that allows non-Canadian investors to obtain pre-closing NSR clearance where their investment is not otherwise subject to mandatory notification or net benefit review. Investments that are not formally notified can now be reviewed on national security grounds for up to five years after the investment is completed. Investors should consider making their notification filing prior to closing where the transaction could raise national security concerns. 

The government is taking further steps to strengthen Canada’s NSR regime. In December 2022, the minister announced a suite of proposed amendments to the ICA to better mitigate the potential security threats that can be posed by foreign investment. If passed, the proposed changes would include mandatory notification requirements for certain investments in prescribed business sectors, and increased penalties for non-compliance.³