In brief
The Government of Canada has announced the 2024 financial thresholds for pre-merger notification and clearance under the Competition Act, and for pre-closing, “net benefit” review and approval under the Investment Canada Act (“ICA“). While the Competition Act “size of transaction” financial threshold remains the same, the ICA financial thresholds have increased. Significantly, this is the third year in a row that the Competition Act financial threshold has remained unchanged at CAD 93 million in a bid to maintain the number of transactions subject to review by the Commissioner of Competition.
Key takeaways
The financial thresholds that determine when a transaction requires pre-merger notification and clearance under the Competition Act, and when an investment requires pre-closing, “net benefit” review and approval under the ICA, are reviewed annually. For 2024, the “size of transaction” financial threshold under the Competition Act remained the same and the financial thresholds under the ICA increased. It is crucial to stay up to date on these financial thresholds as failure to notify a transaction or investment can result in significant penalties under each statute.
In more detail
Competition Act Financial Thresholds – 2024
While the Canadian Commissioner of Competition may substantively review mergers of all sizes, only transactions that exceed applicable financial thresholds are subject to pre-merger notification and clearance under the Competition Act. Currently, the filing fee for notifying a transaction is CAD 82,719.12.
The Minister of Innovation, Science and Industry announced on 28 February 2024 that the “size of transaction” financial threshold for pre-merger notification and clearance under the Competition Act will remain unchanged for 2024. A transaction is notifiable where both of the following financial thresholds are exceeded:
- “Size of Transaction” Financial Threshold. Either (1) the book value of the target’s assets in Canada or (2) the target’s gross revenues from domestic and export sales generated from its assets in Canada exceed CAD 93 million.
- “Size of Parties” Financial Threshold. Together, the parties to the transaction (including their affiliates) have assets in Canada, or annual gross revenues from sales in, from or into Canada, that exceed CAD 400 million.
The thresholds under the Competition Act are reviewed annually. While increases typically occur in line with increases in nominal gross domestic product (GDP), Canada’s GDP growth since 2022 has been modest. The Department of Finance stated that the Government of Canada ‘froze’ the “size of transaction” financial threshold to maintain the number of transactions that are subject to automatic review by the Commissioner of Competition.
Investment Canada Act Financial Thresholds – 2024
All investments in Canada by non-Canadian investors are subject to the ICA, which is Canada’s foreign investment review legislation. Under the ICA, the direct or indirect acquisition of control of a Canadian business by a non-Canadian investor requires either pre-closing, “net benefit” review and approval by the Minister of Innovation, Science and Industry if the applicable financial threshold is exceeded, or notification, which must be filed within 30 days of closing. The applicable financial threshold used to determine whether an investment requires “net benefit” review and approval depends on the (1) identity of the investor (e.g., the nationality of the investor and whether it is a state-owned enterprise (SOE); (2) transaction structure; and (3) type of Canadian business.
The financial thresholds for “net benefit” reviews are adjusted annually based on changes in Canada’s GDP. The 2024 thresholds are as follows:
- Direct investments by private investors from WTO member states that are not SOEs: CAD 1.326 billion based on enterprise value (up from CAD 1.287 billion in 2023).
- Direct investments by private investors from countries having a trade agreement with Canada, referred to as “trade agreement investors”, that are not SOEs: CAD 1.989 billion based on enterprise value (up from CAD 1.931 billion in 2023).
- Direct investments by investors from WTO member states that are SOEs: CAD 528 million based on book value of assets (up from CAD 512 in 2023).
- Investments by non-WTO investors or involving Canadian “cultural businesses”, as defined in the ICA, remain the same: CAD 5 million and CAD 50 million based on the book value of assets for direct and indirect investments, respectively. However, the CAD 50 million threshold for indirect acquisitions of cultural businesses is reduced to CAD 5 million when the value of the Canadian business represents more than 50% of the value of all the assets in the transaction.
- There is no change to the mandatory notification requirement, which applies to investments within the jurisdiction of the ICA that do not meet the applicable criteria and thresholds for “reviewable” transactions.
- There are no value thresholds for screening investments on national security grounds.
Indirect acquisitions of Canadian businesses involving WTO investors, including SOEs, are not subject to a “net benefit” review (unless the investment is in a cultural business); however, they are still subject to notification.
