Indian investors in Canada and the ‘net benefit’ test

By Milos Barutciski, Bennett Jones LLP

Canada is generally open to inbound foreign direct investment (FDI). Nevertheless, large transactions above a specified financial threshold must be reviewed and approved by the minister of industry under the Investment Canada Act (ICA). The minister must first be satisfied that a foreign acquisition that meets the threshold is of “net benefit to Canada”.

The test is not defined by the ICA, but certain factors are identified, including the impact on the level and nature of economic activity in Canada, employment, productivity, competition and Canada’s ability to compete in world markets.

Milos Barutciski Partner Bennett Jones LLP
Milos Barutciski
Bennett Jones LLP

Threshold to rise

The ICA currently requires acquisitions by investors from a World Trade Organization member country (including India) to be reviewed if the Canadian business has assets with a book value greater than C$330 million (US$332 million). The ICA was amended in 2009 to eventually increase the review threshold in three stages, initially to C$600 million in “transaction value”, then to C$800 million and later to C$1 billion. The government of Canada recently published draft regulations to implement the increase, which are expected to come into effect before the end of 2012.

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Milos Barutciski is a partner at Bennett Jones, a law firm with offices in Calgary, Toronto, Edmonton, Ottawa, Dubai, Abu Dhabi, Doha and a representative office in Beijing. Bennett Jones was counsel of record for Sinopec in the acquisition of Daylight Energy and for Glencore in the acquisition of Viterra and managed the ICA reviews in both transactions. The firm also represented the bondholders in the CNOOC acquisition of OPTI.


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