All Interpretation Notes

Industry Canada
Investment Canada Act


Interpretation Note No. 1 - Defunct Business

This interpretation note is issued by the Minister responsible for the administration of the Investment Canada Act (the "Act"), under the authority of section 38 of the Act, to assist investors in interpreting the term "business" as it is defined in section 3 of the the Act, in relation to a business which has ceased normal operations.

Defunct Business

A business which has ceased normal operations and become defunct, as exemplified when the business has permanently closed due to its unprofitability, or has been permanently abandoned or discontinued due to a number of reasons, including depletion of reserves, obsolete plant, machinery, equipment, technological processes or product lines, and the closure did not occur for any purpose related to the Act, is not a "business" as defined in section 3 of the Act, and hence the acquisition of its control would not be subject to the Act. Of course, this determination is a question of fact to be determined by the circumstances of each case.

Temporary Closures

A business which has temporarily closed or suspended its operations for any number of reasons including labour disputes, shortages of raw materials, shortage in demand for its product, periodic fluctuations in the business cycle or temporary financial difficulties is still considered to be a "business" as defined in the Act.

Receivership or Bankruptcy

A business has not gone defunct by reason only that its assets have been placed in the hands of a Trustee in Bankruptcy pursuant to the Bankruptcy Act, or that its assets have been placed in receivership. Provided the Trustee or Receiver is carrying on the operations with a view to disposing of the business as a going concern, or to reorganizing its affairs, it is still considered a "business". However, where circumstances have degenerated to the extent that the business is incapable of being carried on or of being sold as a going concern, and the Trustee or Receiver takes steps to liquidate the assets on a piecemeal basis, it is no longer considered to be a "business" as defined in the Act.

Establishment of a New Canadian Business

Although the acquisition of a Canadian business which has become defunct is not subject to the Act, where assets of the defunct business are acquired as the basis for establishing a new Canadian business, the establishment of that new Canadian business may be subject to the notification requirements of the Act. (see Related-Business Guidelines)

Further information is available from:
Industry Canada, Investment Review Division
235 Queen Street, 5th Floor West,
Ottawa, Ontario

Telephone: 343-291-1887
Fax: 343-291-2469

Email: Investment Canada

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Interpretation Note No. 2 - Part of a Business Capable of Being Carried on as a Separate Business

This interpretation note is issued by the Minister responsible for the administration of the Investment Canada Act (the "Act"), under the authority of section 38 of the Act, to assist investors in interpreting the term "Canadian Business" as it is used in subsection 31(2) of the Act.

Definition of "Canadian Business"

The meaning given to a Canadian business by section 3 of the Act is extended by subsection 31(2) to include "a part of a business that is capable of being carried on as a separate business." This Note identifies factors which are taken into account in determining whether the acquisition of assets constitutes the acquisition of a separate business within subsection 31(2).

Concept of "Separate Business"

The concept of a separate or separable business necessarily implies the existence, prior to the acquisition, of an identifiable part of an existing Canadian business having the capacity to be carried on as a separate business. This will depend upon the circumstances of each case, particularly as they bear on the degree of actual or necessary interconnection or interdependence between the part and the remainder of the vendor's business operations.

Relevant Factors

The following factors may be relevant to this determination.

  1. Does the part have separate accounting mechanisms, management, advertising, selling, purchasing, delivery, customers, or an identifiable group of employees?

  2. Are the operations of the part carried on under a separate licence, patent, or similar right?

  3. Is the part carried on in separate premises, or are the physical assets of the part segregated from the other business operations of the vendor?

  4. Does the part supply or provide some service which is more than purely incidental or ancillary to the main business operations of the vendor?

Acquisition of Assets of Part

When a separable part of a business has been identified, it must then be determined whether the purchaser is acquiring all or substantially all of the assets of the identifiable part (see Interpretation Note No. 3).

Further information is available from:
Industry Canada, Investment Review Division
235 Queen Street, 5th Floor West,
Ottawa, Ontario

Telephone: 343-291-1887
Fax: 343-291-2469

Email:Investment Canada

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Interpretation Note No. 3 - All or Substantially All of the Assets

This interpretation note is issued by the Minister responsible for the administration of the Investment Canada Act (the "Act"), under the authority of section 38 of the Act, to assist investors in interpreting paragraph 28(l)(c) of the Act.

Acquisition of Control

Section 28 of the Act provides the manners by which control of a Canadian business may be acquired and includes, under paragraph (1)(c) of that section, the acquisition of all or substantially all of the assets used in carrying on the Canadian business. This note identifies factors which are taken into account in making the determination under paragraph 28(1)(c) of what constitutes "substantially all" of the assets used in carrying on a Canadian business.

Canadian Business

It should be noted that the term "Canadian business" includes a part of a business that is capable of being carried on as a separate business (see Interpretation Note No. 2).

Qualitative Consideration

The determination is not purely a quantitative one based solely on the proportionate value or number of assets to be acquired or retained by the vendor. Assets also have a qualitative value and this value can have a significant effect in the determination of whether the acquisition of less than all the assets of a business constitutes the acquisition of "substantially all" of the assets used in carrying on the business. If an asset essential to the continuance of the business is not acquired, then, notwithstanding the fact that all other assets are acquired, it cannot be said that control of the business is acquired. On the other hand, if the operating assets essential to the continuance of the business are acquired, the test of "substantially all of the assets used in carrying on the Canadian business" would probably be met.

Essential Assets

Assets essential to the continuance of a business are those assets without which the business cannot reasonably be expected to be carried on. Accordingly, if the investor acquires sufficient assets to carry on the former business, and the vendor is left with insufficient assets to be able to continue to carry on that business, the investor can usually be said to have acquired substantially all of the assets used in carrying on that business. In most cases, liquid assets such as cash, promissory notes and investment portfolios are not considered assets essential to the continuance of a business.

Further information is available from:
Industry Canada, Investment Review Division
235 Queen Street, 5th Floor West,
Ottawa, Ontario

Telephone: 343-291-1887
Fax: 343-291-2469

Email: Investment Canada

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Interpretation Note No. 4 - Business

This interpretation note is issued by the Minister responsible for the administration of the Investment Canada Act (the "Act"), under the authority of section 38 of the Act, to assist investors in interpreting the term "business" as it is defined in section 3 of the Act.

Capable of Generating Revenue

An undertaking or enterprise must be capable of generating revenue and be carried on in anticipation of profit before it is considered to be a business. It must therefore be actively earning revenue or be in a present position to produce revenue earning goods or services. Market research, test marketing or feasibility studies are not by themselves considered activities capable, of generating revenue. If it is in a pre-operational state due to the lack of an essential asset, source of supply or manpower, it is not considered to be a business within the meaning of the Act.

Carried on in Anticipation of Profit

If an undertaking or enterprise is carried on with a charitable or other non-profit objective, it will not be considered to be a business. Profit-making must be a purpose of the undertaking or enterprise; however, even if it is being carried on at a loss in the expectation of future profit, it is considered to be a business.

Oil and Gas Properties

A property upon which only exploration for oil or gas has been conducted is not considered to be a business. A property which contains oil or gas reserves is considered to be a business if production of oil or gas is actually occurring or if it has been determined that the property contains economically recoverable quantities of oil or gas and the drilling of a well to recover such oil or gas for the purpose of production has been commenced. A property containing recoverable reserves which is capable of production but which has been temporarily shut-in is considered to be a business.

Other Mineral Properties

As with oil and gas, other mineral properties which are only at the exploration stage are not considered to be businesses. A producing mine, however, is considered to be a business as is a property on which development of a mine has been commenced for the purpose of production. A mine which has been temporarily closed due to prevailing economic conditions and not due to depletion of ore reserves constitutes a business.

Further information is available from:
Industry Canada, Investment Review Division
235 Queen Street, 5th Floor West,
Ottawa, Ontario

Telephone: 343-291-1887
Fax: 343-291-2469

Email: Investment Canada

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