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Mergers and Acquisitions in Canada

Canada imposes tax on residents of Canada on their worldwide income determined under its Income Tax Act[[(1985, c.1 (5th Supp.)).]] (the “Act”). Taxable income includes employment income, business profits, and investment income such as dividends, interest and capital gains (net of capital losses) from the disposition of capital property.

In contrast, non-residents are only subject to income tax on taxable income earned in Canada in respect of employment income earned in Canada, income from a business carried on in Canada and gains from the disposition of “taxable Canadian property.” The definition in the Act of “carrying on business” in Canada is very broad and includes soliciting orders or offering anything for sale in Canada through an agent or servant, whether the contract or transaction is completed inside or outside Canada. “Taxable Canadian property” includes: (a) real property situated in Canada; (b) property held or used in carrying on a business in Canada; (c) shares and interests in corporations, trusts and partnerships (whether Canadian or non-Canadian) which are not publically listed, if at any time in the 60 months before the disposition, more than 50% of the fair market value of the shares or interests was derived from Canadian real estate, Canadian resource properties, Canadian timber resource properties and options in such properties; and (d) in the case of certain publically listed shares and interests, in addition to meeting the 50% test set out in (c), at any time in the 60 months before the disposition, the owner of the shares along with non-arm’s length persons must have owned more than 25% of a class of shares of the corporation or interests in trusts or partnerships. Canada also imposes a non-resident withholding tax on certain dividends, royalties, management and administration fees, rent, interest and certain other payments paid or credited by a Canadian resident (and certain non-residents subject to Canadian tax) to a non-resident (please see “Withholding Taxes” below). As discussed below, the tax imposed on non-residents may be reduced or eliminated under an applicable tax treaty.

Additional posts from the blog



New Bill Heightens Potential for More Investment Canada Reviews of SOE Acquisitions

by Sandra Walker

Last week the Canadian Government introduced amendments to the Investment Canada Act (ICA) to implement its revised policy towards state-owned enterprises (SOEs) which it announced in December last year. At that time, while it approved the acquisition by Chinese SOE, CNOOC, of Canadian oil and gas company, Nexen, the Government announced its intention to prohibit acquisitions of control of Canadian oil sands businesses by SOEs except on an exceptional basis. It also stated that joint ventures and minority investments were welcome. In addition, the government indicated it would closely monitor SOE acquisitions in other sectors of the economy and would distinguish between SOE and non-SOE investments when setting the ICA review threshold. (See Focus on Foreign Investment Review, December 2012)



The Autorité des marchés financiers Proposes An Alternative Approach to Securities Regulators Intervention in Defensive Tactics

by Guy Paul Allard

On March 14, 2013, the Autorité des marchés financiers (“AMF”) published for comments a consultation paper (the “AMF Proposal”) pertaining to defensive tactics in response to take-over bids. This consultation is taking place concurrently with the one launched the same day by the Canadian Securities Administrator (“CSA”) with the release of proposed National Instrument 62-105 Security Holder Rights Plans and proposed Companion Policy 62-105CP Security Holder Rights Plans (collectively, “62-105”). Unlike the CSA’s 62-105, the AMF Proposal addresses all defensive tacticsii, not only security holders rights plans.



Proposed New Framework for Rights Plans a Potential Game Changer for Hostile Bids

by Daniel Katzin

The Canadian Securities Administrators published for comment a proposed new regulatory framework for rights plans under proposed National Instrument 62-105 Security Holder Rights Plans and proposed Companion Policy 62-105CP Security Holder Rights Plans (collectively, “62-105”). If adopted, 62-105 would provide issuers with a game changing tool to respond to hostile take-over bids, where a target board will be able to use a rights plan as leverage to negotiate with a potential bidder.

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