|
TABLE OF CONTENTS FORM OF BUSINESS ORGANIZATIONS IN CANADA
Unanimous Shareholders' Agreements Branch of Foreign Corporation Partnerships Limited Partnerships Co-Tenancies and Joint Ventures Agency, Distribution and Franchise Arrangements FOREIGN INVESTMENT AND ANTI-COMBINE LEGISLATION SALES AND TRANSFER TAXES INCOME AND CAPITAL TAXES
Canadian Subsidiary Corporation Canadian Branch Operation Choosing Between a CanadianSubsidiary and Canadian Branch Operation Federal Capital Tax Provincial Income and Capital Taxes
Misleading Advertising Packaging and Labelling Laws Hazardous Products Act Textile Labelling Act Food and Drugs Act THE FRENCH LANGUAGEREQUIREMENTS IN THE PROVINCE OF QUEBEC
Labour Relations Product Labelling Catalogues, Brochures, Etc. Signs and Posters Firm Names Francization of Business
Canada is now the world's second largest country. According to Statistics Canada, in 1996, there were 30,000,000 people living in Canada. The United States is smaller in area, but the Canadian population is approximately 1/10 of the population of the U.S. Over 90% of Canadians live less than 200 miles from the U.S.-Canada border. As a result, Canada and the United States share many economic imperatives and cultural influences. The economic and material aspirations and realizations of the Canadian and U.S. populations are strikingly similar. From an historical perspective, however, Canada remains significantly different than the U.S. Canada today is a highly multicultural society which generally respects and enshrines cultural heritage rather than encouraging the population to form a homogeneous melting pot. Colonized by the British and French, Canada remains a bilingual country; English and French are the two official languages. About 25% of the population is French speaking, with the greatest concentration in the province of Quebec. With a separatist political party forming the official federal opposition and the provincial government in Quebec, the spectre of separatism continues to mark the Canadian landscape. Ironically, the uncertainty over the future of Quebec is, at present, a significant factor in the decision by international investors regarding existing and future investment in Canada. The separatist sentiment has helped make Canada a competitive jurisdiction for investment, because the political uncertainty has fuelled a weaker Canadian dollar. This permits Canadian industry to produce goods and deliver services economically. Canada remains an attractive location for the establishment or expansion of business in North America. During the past few years, there has been a marked trend toward fiscal conservatism. Federal and provincial governments are taking serious efforts to reduce deficits and balanced budgets are on the foreseeable horizon. Despite these positive steps and improved corporate earnings, consumer confidence has not rebounded. Accordingly, inflation and interest rates remain extremely low and Canada's dollar remains weak relative to the U.S. dollar. Except in certain industry specific situations where cultural values are at risk, Canada is receptive to foreign investment. Despite its relatively small population, Canada is the seventh largest trading nation in the world. Although historically Canada was an exporter of raw materials and an importer of manufactured goods, shipments from Canada are now balanced between raw materials and finished goods. The Canadian economy is also heavily influenced by the state of the U.S. economy. Canadian exports to the United States represent 25% of Canada's gross national product and 75% of its total exports. 40% of all Canadian manufacturing output is produced by corporations controlled by Americans. The American influence in Canada has become much more visible. A flood of large American retailers in recent years, like Wal-Mart and Home Depot, has altered the Canadian retail environment. This paper is intended to provide a general overview of particular matters of interest to businesses considering entry into the Canadian market. Where appropriate, descriptions of both federal and Ontario laws are provided. However, this paper should not be considered an exhaustive review, and particular businesses may be subject to industry specific legislation and other legal requirements which are not dealt with in this paper. Accordingly, before undertaking any business transaction involving entry into Canada, it is prudent to seek the advice of counsel.
Canada's Constitution creates mutually exclusive jurisdictions for federal and provincial legislation. For example, Canada's intellectual property, bankruptcy, and criminal laws are solely within the purview of the federal government. Provincial legislative authority is granted for the regulation of trade and commerce, education and health within the province. However, the jurisdictional distinctions are often blurry, and the subject matter of federal and provincial legislation sometimes overlaps. Bankruptcy is governed by the federal Bankruptcy and Insolvency Act. However, receiverships often are governed by private contractual relationships which are interpreted in accordance with provincial law. Corporations may be incorporated either federally or provincially. Similarly, both levels of government assess personal income taxes. The regulation of broadcast, pharmaceutical and most transportation industries is within the federal purview; however, virtually all professions are governed by provincial statutes. Property and civil rights are matters within the purview of provincial governments. Accordingly, businesses may find themselves regulated by securities laws and environmental legislation from several jurisdictions. Although much of the law is consistent in the various provinces, it may be necessary to review statutes in each province in which an enterprise carries on business. All jurisdictions in Canada other than Quebec operate under common law principles. Accordingly, unless ousted by legislation, the law governing business relationships is derived from the decisions of the judiciary. Quebec is a civil law jurisdiction with a civil code based on the Napoleonic code. The Quebec judiciary's function is generally confined to the interpretation and application of the civil code to determine the rights of parties.
FORM OF BUSINESS ORGANIZATIONS IN CANADA The first issue facing foreigners setting up business in Canada is the type of entity which should be used to operate the business. Among the most commonly used are:
Most businesses in Canada are carried on by corporations. A corporation is a distinct, legal entity which has perpetual existence and is afforded all the right to own property and the right to carry on business as is enjoyed by a natural person. There are several advantages to utilizing a corporate form of organization. Firstly, the liability exposure of the shareholders of a corporation is limited to the amount of their equity investment. Secondly, a corporation offers investors access to a wider variety of capital and financing opportunities than most other forms of organization. Since a corporation is a flexible form of organization for business, various classes of shares and debt instruments may be utilized to provide different levels of shareholder and lender participation which reflect the degree of risk inherent in the investment. Canadian corporations can either be private corporations or public corporations. Private corporations are generally those which:
Corporations may be incorporated and organized under either the federal Canada Business Corporations Act (the "CBCA") or the equivalent legislation of each of the provinces. Incorporation and organization under the CBCA does not automatically give rise to a right to carry on business in each province. A federal corporation must register in each province in which it proposes to carry on business. Similarly, a provincial corporation may carry on business in another province, provided an extraprovincial licence is obtained. For certain highly regulated business undertakings such as insurance companies, banks and trust companies, specific statutes set incorporation, organization and operational standards. When consulted by a foreign company wishing to carry on business in Canada through a Canadian subsidiary, a lawyer will compare the features of the CBCA and the provincial statute of the province in which the head office of the subsidiary will be located in order to determine the preferred corporate statute under which to incorporate and organize. Although the statutes are substantially similar, there are slight differences in the areas of public disclosure of financial statements and residency requirements for directors, which may affect the choice of incorporating jurisdictions. Under the provincial corporate statute in Ontario, a majority of the directors must be Canadian residents. For the purposes of the Ontario Business Corporations Act (the "OBCA"), Canadian residents are citizens or landed immigrants. In the event there are only two directors of an Ontario corporation, only one need be a Canadian resident. The CBCA requirements are similar, except that landed immigrants may lose their status as resident Canadians for CBCA purposes unless they become citizens within one year of first eligibility, and there is no provision in the CBCA for only one Canadian resident director if there are only two directors of the corporation. As well, in certain circumstances under the CBCA, the residency requirements are reduced for holding corporations. There are other factors which may tip the scales in deciding whether or not the federal jurisdiction or the provincial jurisdiction should be utilized for incorporation. For example, certain financing incentives provided by one level of government may dictate incorporation within that jurisdiction. There is also a perception that certain businesses that supply goods or services to a particular province should strongly identify with that province, making it advisable to incorporate within that jurisdiction. Finally, some political considerations and peculiarities (such as the inability to export a corporation incorporated under provincial legislation in Quebec) may make it prudent to utilize a federal corporation for any business which does or has aspirations of doing business outside the province of Quebec. Corporate names may have separate English and French versions. In such cases, the versions may be used interchangeably. If a corporation wishes to do business with the government of Quebec, it is necessary to adopt a French version of its corporate name. Federal and provincial corporate statutes also provide shareholders with dissent and appraisal rights which may require a corporation to acquire a shareholder's interest for its fair value if a corporation implements a fundamental change. Corporate legislation also contains statutory oppression remedies which grant courts broad rights to grant equitable remedies where shareholders or creditors have been subject to corporate activity which is unfairly prejudicial or unfairly disregards their respective interests. These remedies are in addition to any remedies flowing from fiduciary duties which have been compromised.
Unanimous Shareholders' Agreements The term unanimous shareholders' agreement ("USA") is used to refer to a shareholders' agreement between all of the shareholders of a corporation. Where a corporation has few shareholders they will often want to customize their relationship to provide for an arrangement which is different from that contemplated in the OBCA, CBCA or at common law. USAs can regulate a specific topic or every detail of a corporation's operation. The following are subjects which are commonly covered in USAs:
(ii) Share Transfer: Shareholders may want to set up mechanisms to restrict share transfers (which are typically subject to a right of first refusal) and the issuance of additional securities; (iii) Buy-Sell Arrangements: "Shotgun" buy-sell arrangements, rights of first refusal, auction procedures, and the method by which shares are valued are often central issues covered by the USA; (iv) Dispute Resolution: Shareholders may want to resolve their disputes by such means as arbitration, instead of by means of the relative voting power of different shareholders.
Often, foreign investors wish to carry on the Canadian operations as a branch of a foreign corporation or U.S. subsidiary. Foreign corporations are generally entitled to carry on business in this manner in most areas of commercial activity, provided that extraprovincial licences are obtained in the jurisdictions in which they carry on business. Once again, the decision to use a foreign branch is dependent upon a number of considerations. Incorporation often makes it easier for small and medium-sized businesses to deal with Canadian suppliers and customers. It is often assumed that choosing a Canadian corporation demonstrates a commitment to Canadian operations. Such assumption has no foundation in law. If independent financing for the Canadian operation is required, local financing is much easier to obtain through the use of a Canadian-owned subsidiary. The failure to create a separate corporate entity will expose the foreign corporation to all liabilities incurred in the Canadian operations. The tax treatment for branch operations is discussed elsewhere in this paper. Income tax must be paid in Canada on Canadian branch profits. The ability to claim a full foreign tax credit at the parent corporation level must be considered to ensure that double taxation is avoided. Accordingly, the taxation of the foreign corporation and the projected income or losses which will be incurred by Canadian operations are important (and usually determinative) factors to be considered.
A partnership is a relationship that exists between two or more people (individuals, corporations, partnerships or other entities) who carry on a business in common with a view to earning profit. In a general partnership, it can generally be said that:
A limited partnership is a type of partnership which restricts the exposure of passive individual partners for the liabilities of the partnership. Limited partnerships are creatures of provincial statutes. These statutes contain subtle differences with respect to the exposure of individuals to liability in excess of the capital invested in the partnership by such individuals. These differences are dependent on the province in which a limited partnership is organized. A limited partnership consists of one or more general partners (who are exposed to unlimited liability) and one or more limited partners. Under the Ontario legislation, a limited partner is liable as a general partner in the event such limited partner takes part in the control of the business. In other words, in some circumstances, the limited partner will have unlimited liability. In some provinces, the extent to which a limited partner is exposed to liability is limited to the result of the acts such limited partner performs in the management and operation of the business of the limited partnership. A limited partnership does not come into existence until it is registered under the laws of the province in which it is established. Typically, registration requires filing forms which provide specific information about the identity of the general partner. These forms may or may not require the identities of the limited partners. There is requirement that the limited partnership agreement itself be filed in an office where it may be scrutinized by the public. Limited partnerships are useful vehicles where there is a desire to flow through income and expenses and yet limit the liability of the individual participants in a particular venture. However, its suitability requires that the investment of the limited partner/investor be passive in nature.
Co-Tenancies and Joint Ventures Real estate investments are often held in the names of co-tenancies or joint ventures. A co-tenancy is not a tax paying entity, nor is it a relationship such as a partnership which is treated like an entity for the purposes of calculating net income. Accordingly, there is some flexibility available in the preparation of financial statements for cotenancies. Each co-tenant or joint venturer may determine the amount of depreciation expense which will be utilized by it in the calculation of income for tax purposes. In the case of joint ventures, agreements are virtually always negotiated prior to undertaking joint venture activities. Since a joint venture is not recognized as a distinct and separate entity, it cannot sue or be sued. The joint venture agreement will delineate the respective rights and liabilities of the joint venturers, including their right to bind other parties. The use of a co-tenancy or joint venture assumes that the parties are not in a partnership relationship. Accordingly, where a joint venture structure is contemplated, care must be taken to analyze whether or not the joint venture structure will survive the scrutiny of a third party who may seek to impose full liability on each co-tenant as if it was a partner in a general partnership. Notwithstanding language contained in the typical joint venture which confirms that the parties are joint venturers and not partners, if the threshold partnership test of carrying on business in common with a view to a profit is met, there is a risk that the co-tenancy will be deemed to be a partnership and the individual co-tenants liable as partners in a general partnership.
Agency, Distribution and Franchise Arrangements In some cases, the decision to expand into Canada may be realized without actually having the foreign business entity carry on business in Canada. The granting of a franchise or the entering into of a distribution contract or agency agreement in Canada does not, in and of itself, constitute carrying on business in Canada. Accordingly, it is often appropriate for a foreign entity to consider the use of a Canadian agent, distributor or master franchise, or to expand its business operations into Canada. In each case, the relationship should be governed by contract to avoid ambiguity. Generally speaking, if an agency relationship exists, the agent will have the right to bind its principal to contractual commitments. A distributor does not have such rights and, like a franchise, is generally considered to be an independent contractor. The ownership and protection of intellectual property rights and exclusivity rights are often given insufficient emphasis when establishing an initial relationship with a Canadian entity. Such diffidence can create significant problems when the relationship between the parties change. In addition, termination rights must be considered. In the absence of a written contract, a Canadian agent or distributor will be entitled to reasonable notice before the termination of its contract. If insufficient notice of termination is given, a court may award damages in lieu of notice. Most Canadian jurisdictions do not have franchise disclosure legislation. Although it is under consideration in several provinces, at the time of writing, only Alberta has legislation requiring disclosure documentation in the form of a prospectus. Accordingly, a foreign entity and Canadian franchisee are free to customize the contractual relationship between them without special consideration of the franchise relationship. However, the statutory requirements for general commercial contracts will remain applicable. Many of these requirements are referred to in this paper.
Under both the OBCA and the CBCA, every director and officer of a corporation is required to act honestly and in good faith with a view to the best interests of the corporation when exercising his or her duties. In addition, every director and officer must utilize the care, diligence and skill that a reasonably prudent person would exercise in similar circumstances. Directors and officers are also required to comply with the legislation, the regulations, articles, by-laws and any unanimous shareholders' agreement. In certain circumstances, directors will attract personal liability. For example, liability will be imposed upon individual directors under both the OBCA and the CBCA for authorizing corporate actions which are in violation of specified sections of the applicable Acts. Directors are exposed to personal liability for the improper declaration of dividends, the granting of financial assistance contrary to the statutory provisions, or the corporate purchase or redemption of shares where such acts render the corporation insolvent. In addition, directors will be liable to the corporation for certain acts which constitute breaches of trust, misfeasance and gross negligence. Directors may be liable for acting in excess of their authority or for their own actions which are tortious. However, directors will not be responsible for tortious acts of the corporation unless these acts were expressly directed by them. In addition, directors are jointly and severally liable for employee wages, not exceeding six months, which have become payable while they were directors. Under the OBCA, individual directors are also responsible for not more than 12 months of vacation pay which accrued while they were directors. Under the Income Tax Act (Canada), directors may be held personally liable for any amount which the corporation has failed to deduct, withhold or remit on behalf of the corporation's employees as required under the Act. Environmental protection statutes also impose liability upon directors. Case law appears to require positive steps to be undertaken by directors to seek out, monitor, and resolve environmental issues in order to avoid statutory liability These issues are discussed elsewhere in this paper.
FOREIGN INVESTMENT AND ANTI-COMBINE LEGISLATION Until the early 1980's, Canada's Foreign Investment Review Act legislation contributed to the image of Canada as a country that imposed restrictive barriers to the entry of foreign business. Governmental anxiety about foreign investment has subsided, and it is generally accepted that foreign investment is welcome and encouraged in Canada. The Foreign Investment Review Act has been repealed and replaced with the Investment Canada Act ("ICA"). The thrust of the ICA is to monitor the level of foreign investment in Canada. Most investments require mere notification to the Canadian government along with the filing of simple forms under the ICA. Such transactions may be subject to review, but are not automatically reviewable. The forms require identification of the parties and the business, the value of the business assets, and an indication of the number of employees to be employed in the Canadian business. Notification may be given prior to closing or within 30 days thereafter. Reviewable transactions are limited to those which exceed certain threshold values or are related to certain specified industries, such as publishing and broadcasting. The notification or review provisions of the ICA are triggered by the establishment of a new business in Canada or the acquisition of control of an existing established Canadian business. Virtually all new businesses, other than those businesses which relate to Canada's cultural heritage or national identity (book publishing, broadcasting and film production), require notification only. Acquisition of control of a Canadian business is defined in the ICA as the purchase of one-third or more of the voting shares of a corporation carrying on a business in Canada. In such cases, the direct purchase of control of an active Canadian business by foreign interests is subject to review under the ICA if the Canadian business has assets whose book value exceeds $5,000,000. Pursuant to the North America Free Trade Agreement ("NAFTA"), in the event the investor is American or Mexican, the threshold is significantly higher. The NAFTA threshold is based on $150,000,000 in 1992 constant dollars (i.e. adjusted to the equivalent of $150,000,000 1992 Canadian dollars). The threshold is adjusted annually based on the following formula: CURRENT NOMINAL GROSS DOMESTIC PRODUCT AT MARKET PRICES PREVIOUS YEAR NOMINAL GROSS DOMESTIC PRODUCT AT MARKET PRICES For foreign investors other than NAFTA investors, the threshold for reviewable acquisitions is $5,000,000, except where an indirect acquisition of an established business in Canada occurs. For example, if the takeover of a foreign company occurs and such company has a Canadian subsidiary carrying on business in Canada, such acquisition would be considered an indirect acquisition. The threshold for review of indirect acquisitions is $50,000,000 for non-NAFTA investors, provided that the Canadian business assets do not represent more than 50% of the assets involved in the international transaction. Indirect acquisitions by NAFTA investors are not reviewable no matter what the size of the Canadian business. Where a review is required, Investment Canada is required to determine whether or not the proposed investment is likely to result in a "net benefit'' to Canada using criteria which includes the following:
Large Transaction Prenotification The federal Competition Act requires compulsory notification for certain types of transactions. The Director appointed under the Competition Act may challenge a merger upon review of the notice or within three years thereafter, if the Director believes that the merger would, or may be likely to, prevent or lessen competition substantially in a market. Prenotification under the Competition Act is required where:
Depending upon the type of transaction, if the prenotification conditions exist, there may be a delay required for completion of the transaction. There are often requests for advance ruling certificates. Accordingly, the prenotification procedures give rise to negotiations whereby undertakings or conditions are sought which satisfy the Director that the merger will not result in a substantial lessening of competition.
In order to discourage the importation of goods at prices below the price at which such goods would be sold in the exporter's home market, Canada has anti-dumping legislation which imposes duties to prevent unfair competition with domestic Canadian goods. Similar duties may be payable when imported goods are subsidized in their country of manufacture. For a more detailed discussion, see the Customs and Excise Taxes section of this paper.
Canada has a 7% value-added tax imposed on goods and services called the Goods and Services Tax ("GST"). The GST is applied to each transaction in the production and distribution chain, including services and including the importation of most goods and services into Canada. Financial services such as loan interest and an extremely limited number of goods such as most grocery items are exempt from GST. With respect to imported goods, GST is based on duty paid value (which includes customs duty). Goods exported from Canada are not subject to GST. Most financial services, including insurance premiums and bank interest, are also exempt from GST. Virtually all other persons, including corporations, who carry on business in Canada having revenues greater than $30,000 per year must register to collect GST. Importers and domestic businesses who register for GST are entitled to input credits equal to the full amount of the GST paid by them on all business purchases. Accordingly, the tax and input tax credit system removes the tax from business inputs and effectively reduces the tax on each business entity to the value added by such entity. Non-residents who solicit orders in Canada or offer for sale certain goods such as books or periodicals for delivery in Canada are required to register for and collect GST. Certain non-residents who are not carrying on business in Canada may register to collect and remit GST if they regularly solicit orders for the supply of goods in Canada. Registration would be desirable if such supplier wishes to obtain input tax credits for GST paid to Canadian suppliers. A non-resident without a permanent establishment may be required to post security in connection with its obligation to collect and remit GST. To ensure that direct exporters to Canada do not receive advantageous treatment, imported goods are subject to GST based upon their duty paid value. Imported services and payments to non-residents in respect of intellectual property are not subject to GST if wholly used in taxable commercial activities of the purchaser.
With the exception of the province of Alberta, each province charges a sales tax on tangible personal property and certain services. This tax is levied only at the retail level. Sales taxes in the Canadian provinces generally range between 6% and 10%. Ontario's sales tax is currently 8%. Most provinces provide exemptions from retail sales taxes for certain goods, such as basic groceries. As well, exemptions for certain purchases of production machinery are contained in most provinces' legislation. However, there is a variation from province to province in the services which are subject to taxation. For example, British Columbia extends sales tax to lawyers' accounts. A Harmonized Sales Tax ("HST") system has been implemented in Nova Scotia, New Brunswick and Newfoundland, which harmonizes those provinces' respective retail sales tax systems with the federal Goods and Services Tax. The HST applies to all goods and services that are currently subject to GST and will be administered under the Excise Tax Act ("ETA"). It operates as a single value added tax of 15% on taxable supplies for goods and services made in the participating provinces. Supplies made in the non-participating provinces remain subject to GST and provincial retail sales tax under the current rules. Registrants will be entitled to claim input tax credits ("ITCs") for tax payable at either the 7% or the 15% rate. Entitlement is determined under the current GST rules, as well as any HST specific rules. GST registrants will continue to use their GST registration number to collect and remit HST and to claim ITCs. The HST is designed to streamline collection and reporting required by merchants. However, many of the provincial exemptions from sales tax will disappear.
A land transfer tax is payable in most provinces on the acquisition of real property in that province. In Ontario, the general rate is 0.5% on the first $55,000 of value and 1% on the next $195,000 of value and 1.5% on the balance of the consideration payable tor the real property. Where the real property consists of a single family residence, that portion of the consideration that exceeds $400,000 is subject to an additional 0.5% of land transfer tax. Where certain "restricted" land (which definition applies to certain undeveloped or agricultural land) in Ontario is acquired by a non-resident, a higher rate of 20% is applicable, except in certain circumstances where a discretionary rebate is available. This additional land transfer tax may be exigible even where the purchaser acquiring the interest in land is a Canadian corporation which is controlled by a nonresident of Canada.
Canada imposes a federal corporate income tax on non-residents who carry on business in Canada or sell real property situate in Canada. In general terms, this is restricted to income derived from Canadian business activities and Canadian situate investments. In addition, Canada imposes a federal non-resident withholding tax on non-residents who do not carry on business in Canada through a permanent establishment receive Canadian source dividends, interest and certain other amounts from Canadian payers. In these circumstances, the Canadian payer is required to withhold tax from the gross amount of the dividend, interest, etc. and remit this to the Receiver General for Canada as tax on behalf of the non-resident recipient. Subject to rules in the Internal Revenue Code, a U.S. foreign tax credit should be available in respect of Canadian non-resident withholding tax or branch tax. Canada has entered into bilateral tax treaties with many countries. The Canada-U.S. Income Tax Convention (1980) as amended by various Protocols (the "Convention") is an example of a tax treaty which contains certain relieving provisions. In particular, in the absence of a permanent establishment in Canada (as defined in the Convention), a U.S. non-resident carrying on business in Canada will not be subject to Canadian federal income tax. A permanent establishment is defined as a fixed place of business through which the business of the non-resident is carried on and includes, for example, an office or factory. The Convention also provides for a reduction in withholding tax rates on certain types of Canadian source income distributed to non-residents as described below. A U.S. non-resident corporation may carry on business in Canada either by incorporating a Canadian subsidiary corporation or by means of a Canadian branch operation. In either case, in the absence of a "permanent establishment" in Canada as defined in the Convention, federal income tax is not exigible. It should be noted that the definition of "permanent establishment" in the Convention may differ from the definition of the same term as applicable for provincial purposes.
Canadian Subsidiary Corporation A corporation incorporated in Canada (whether federally or provincially) will be considered to be a resident of Canada for income tax purposes and therefore will be subject to Canadian income tax on all of its worldwide income under Part I of the Income Tax Act (Canada) (the "Act"). The 1996 combined federal-Ontario corporate rates of income tax are as follows:
If a foreign entity establishes a joint venture subsidiary with a Canadian resident and owns no more than 50% of the Canadian subsidiary, tax on the first $200,000 of annual net income may be significantly reduced. Assuming that the Canadian subsidiary shall repatriate profits to its foreign parent, nonresident withholding tax under Part XIII of the Act may apply. Part XIII of the Act imposes a withholding tax rate of 25% which is generally reduced by the various tax treaties. Pursuant to the Convention, the reduction depends on the means of repatriation as follows:
** Limited to the gross amount of dividends if the beneficial owner is a company that owns 10% or more of the voting stock of the company paying the dividends. 
If a non-resident carries on business in Canada through a permanent establishment and does not incorporate a Canadian subsidiary, tax under Part I of the Act will also be applicable at the rates described above in respect of income from Canadian business operations. Branch tax is imposed on the after tax profits of the Canadian branch operations which are not, in general terms, reinvested in Canada. The branch tax is intended to be roughly equivalent to the withholding tax which would be payable on dividends which would have been paid by a Canadian subsidiary to its foreign parent. The rate of Canadian branch tax is 25%. This rate has been reduced by the Convention to 10% for branches of U.S. corporations. In addition, the Convention provides for a one time exemption for the first $500,000 of Canadian net profits. A U.S. foreign tax credit should be available in respect of Canadian income taxes paid for the Canadian branch operation, subject to the rules in the Internal Revenue Code.
Choosing Between a Canadian Subsidiary and Canadian Branch Operation There are a number of considerations relevant to this issue. Non-income tax considerations such as regulatory compliance or the desirability of segregating Canadian assets and liabilities from U.S. assets and liabilities are relevant. Tax considerations to consider include the following:
(b) if a Canadian branch structure is utilized, a Canadian income tax return must be filed and a certain amount of disclosure about the U.S. parent will accordingly be necessary; (c) if a Canadian branch structure is utilized, the ability to subsequently incorporate the branch on a tax free basis must be considered both from a Canadian and U.S. tax perspective; (d) if a Canadian branch structure is utilized, one will typically pay the higher of the two tax rates of the two jurisdictions.
In addition to the federal income tax, Canada also imposes a "large corporations tax". This is essentially a federal capital tax at the rate of 0.2% on capital employed in Canada by a corporation in excess of $10,000,000. In the case of non-resident corporations which carry on business in Canada, the "large corporations tax" is imposed only on that portion of the corporation's capital which is employed in Canada in the year.
Provincial Income and Capital Taxes Canadian provinces impose income tax on corporations carrying on business within the province. Many of the provinces, including Ontario have imposed a capital tax on corporations. The Ontario capital tax is imposed at the rate of 0.3% on "taxable paid up capital" employed in Ontario of corporations with a permanent establishment in the province. For this purpose, 'taxable paid-up capital" is essentially a year-end balance sheet computation being the aggregate of issued share capital, certain surplus accounts and reserves, and advances to the corporation or indebtedness, less an "investment allowance" in respect of investments in or advances to other corporations and certain other bodies.
All goods entering Canada must go through customs inspection at the port of entry, at which time they are valued and duty, if any, is levied. In 1988, Canada adopted a new classification system known as the Harmonized System. The new system provides for the classification of goods by their essential or intrinsic character, not according to use. Documentation accompanying goods must show origin, nature of the goods, their intended use and their value and/or price. The value of goods is the invoice price for the goods wherever possible. Where the invoice price cannot be used for the value, the Customs Act provides for other methods of valuation to be used. In Canada, the valuation rules are based upon Article VII of the international General Agreement on Tariffs and Trade ("GATT'). Under GATT, the valuation attempts to replicate the actual transaction value at which goods are sold for export into Canada in a transaction between parties dealing at arm's length. Where the vendor and purchaser do not deal at arm's length, the importer must show that the relationship with the foreign exporter did not influence the transfer price. If the transaction value is not reliable, the following valuation methods are considered:
(b) transaction value of similar goods; (c) deductive value; and (d) computed value. The amount of customs duty is determined by reference to the customs tariff which sets out a specific list describing the class of goods and setting out the corresponding rate of duty. The customs duty rate is determined according to the country of origin of the goods and whether the country falls under a most favoured nation type status. Under NAFTA, duties on goods qualifying as North American under rules of origin are being eliminated or phased out over a period of five, 10 or 15 years. The previous duty reductions set out in the Canada-U.S. Free Trade Agreement, which came into effect on January 1, 1989, are, in the main, unaffected by NAFTA. Accordingly, the elimination or phased in reduction of duties over a period of up to 10 years of duties will still occur with respect to substantially all goods traded between Canada and the U.S. which are considered to have originated in either country. Typically, goods manufactured outside of the United States or Canada or goods manufactured in those countries which do not meet the rules of origin tests relating to the materials and other components used during the manufacturing process do not benefit from the Free Trade Agreement duty reductions. The nature of the transformation of the goods during the manufacturing process and the direct importation from the United States thereafter without any subsequent processing or assembly outside the United States will generally permit goods to qualify as goods originating in the United States. However, the rules of origin require transformation into a new tariff classification to qualify for the preferential tariff rates under NAFTA. In certain circumstances, regional value content requirements may be established with respect to a relatively small number of classifications of goods. For example, automotive parts must have 50% North American content to qualify for preferential tariffs under NAFTA. This North American content requirement will rise over the next 10 years to between 60% and 62.5%. The textile and clothing industry also has a regional value content rule. Tariffs are to be phased out over either an eight or a 10 year period, but eligibility for a preferential rate depends upon a more stringent test than was applicable under the Free Trade Agreement. Unless an exception or special allocation is available, the so-called "yarn forward rule" requires not only that fabrics be cut and sewn in the Free Trade Area, but also that the yarn itself have North American content.
Under the Excise Act, alcohol, beer, tobacco and related products are subject to excise duties. These duties are not applicable to imported goods which are not further manufactured or processed in Canada. However, imported goods of such categories are subject to a special duty under the customs tariff which is equal to the excise duty.
Pursuant to the Special Import Measures Act ("SIMA"), there are special anti-dumping duties for imported goods sold in Canada at prices which are below the prices in the home market. In addition, where goods sold in Canada are subsidized by the exporting country, a counter-veiling duty may be imposed. These anti-dumping and counter-veiling duties may be imposed as additional charges, over and above the normal customs tariffs. SIMA is designed to provide Canadian producers with relief from unfair import competition. In order for an anti-dumping duty to be levied, two conditions must be met:
(b) the dumping of the imported goods must have been found by the Canadian International Trade Tribunal to have caused, be causing or be likely to cause material injury to production in Canada of like goods. Dumping occurs when the "normal value'' of the imported goods exceeds the "export price". The "normal value" is generally the price at which the exporter sells the goods in its domestic market under competitive conditions to arm's length purchasers comparable to the importer. Where there are no comparable purchasers (ie. purchasers who are at the same or substantially the same trade level, and who purchase the same or substantially the same quantities, as the importer), the normal value may be derived by adding the goods cost of production, an amount for administrative, selling and other costs and an amount for profit. It may also be derived by reference to the prices at which the exporter sells the goods to importers in third countries. Generally, "export price'' means the lesser of the exporter's sale price of the goods and the price for which the importer has purchased or agreed to purchase the goods after deducting (i) all costs, charges and expenses arising from the exportation of the goods; and (ii) import duties and taxes imposed by Canadian law. If the normal value exceeds the export price, determined as above, the imported goods will be found to have been dumped. Criteria utilized in determining whether or not there has been material injury to production in Canada of like goods include the following:
If the Deputy Minister is of the view that there is evidence that imported goods are being dumped and material injury to production in Canada of like goods will occur, an investigation may be initiated. Notice of the investigation will be given to the sellers, the purchasers, the government of the country of export, and any Canadian producers who have complained. If a preliminary determination of dumping occurs, the Deputy Minister has the right to impose a provisional dumping duty equal to the "margin of dumping". The "margin of dumping" is the amount by which the normal value of imported goods into Canada exceeds the export price for such goods. The importer is responsible for payment of dumping duties. A final determination is thereafter made by the Deputy Minister. At the same time, the Canadian International Trade Tribunal is required to commence its inquiry and to hold a public hearing to determine whether or not the dumping is causing, or will likely cause in the future, material injury to production in Canada of like goods.
In order for a countervailing duty to be imposed, SIMA requires that two conditions must exist: (i) the Deputy Minister of Revenue must find that the imported goods have been subsidized; and (ii) the Canadian International Trade Tribunal must find that the imported goods have caused, are causing or are likely to cause material injury to production in Canada of like goods. The definition of subsidy includes any financial or other commercial benefit to people engaged in the production, manufacture, growth, distribution, export or import of the goods in issue as a result of a scheme or programme provided or implemented by the country of export. If subsidization and material injury have been found, the imported goods will be subject to countervailing duties in the amount of the subsidy.
MARKETING AND LABELLING LEGISLATION In Canada, the federal Competition Act creates criminal offences with respect to certain pricing of goods and services for sale in Canada. Included in these offences are:
(b) directors, agents, officers or employees of either the same or affiliated corporations, partnerships or sole proprietorships; or (c) principal and agent. Predatory pricing involves the practice of selling goods and services at unreasonably low prices. To be unlawful, this practice must be likely to have the effect of, or intended to have the effect of, substantially lessening competition in a market or eliminating a competitor in a market. Where specific competitors are targeted, or prices are set below cost, extreme caution should be exercised. The Competition Act creates an offence of selling a like quality and quantity of articles to purchasers who are competitors of each other at different prices, or offering volume rebates or other advantages to one purchaser where such rebate or advantage is not made available to its competitors at the time the goods are sold. Selling products in one area of Canada at prices lower than those exacted elsewhere in Canada may also be unlawful if it tends to substantially lessen competition or eliminates a competitor in that part of Canada.
The federal Competition Act makes it a criminal offence to make a representation to the public that is false or misleading in any material respect. In addition, representations in the form of statements, warranties or guarantees regarding a product that are not based on adequate or proper testing will also be considered a criminal offence. Finally, making a false or misleading representation regarding the price at which goods will ordinarily be sold is unlawful.
There are a number of laws directed at deceptive marketing practices and improving fairness towards consumers in the marketplace. The following review concentrates on consumer products. In the event industrial products are exported into Canada, there may be specific rules regarding a particular product. The Consumer Packaging and Labelling Act ("CPLA") is designed to protect consumers from misrepresentation in packaging. Retailers, manufacturers, processors and producers of a "product" are required to comply with the CPLA. "Products'' is defined in the CPLA as any article that is or may be the subject of trade and commerce. It includes both food and non-food items. The CPLA requires all prepackaged products to have affixed a label declaring the net quantity of the product in the form prescribed by the Act and Regulations. Generally, information is required to be in both English and French, and must express the quantity of the product in metric units. In addition to quantity, the common name of the product and the principal place of business of the person by or for whom the prepackaged product was manufactured must also be disclosed. Certain products are required by the CPLA to be packaged in standardized containers. Toiletries, perfume, peanut butter, wine, cosmetics, and powdered laundry detergent fit within this class of products. This requirement is intended to prevent consumers from being misled or confused by an undue proliferation of container shapes and sizes.
The Hazardous Products Act ("HPA") regulates the advertising, labelling, sale and importation into Canada of hazardous products. Schedule I to the HPA lists products which may not be imported or sold in Canada. Examples of such prohibited products are lead pigments in paint and asbestos in textiles. The HPA also lists certain "restricted" and ''controlled" products which may be imported or sold in Canada only if they comply with specified safety standards. Children's toys, furniture and certain flammable textile products are examples of products within the "restricted" category. "Controlled" products include products which are toxic, flammable and corrosive. Pursuant to the HPA, importation of controlled products may be prohibited unless the supplier or importer provides a material safety data sheet on the product and labels the product as specified in the regulations. This data sheet must contain details on ingredients, risks, injury prevention and treatment procedures. In certain cases, confidential ingredient information may be exempted from disclosure to competitors or the public.
The Textile Labelling Act ("TLA") is designed to provide consumers with information concerning the fibres contained in fabrics, clothing and other articles made from fabrics and yarns. The TLA requires a disclosure statement contained in a label indicating the name of the textile fibre (as such name is prescribed in the Textile Labelling Regulations), the percentage of that textile fibre contained in the product by weight, the name and address of the person/buyer for whom the article was imported and labelled; and the country of origin of imported articles. In certain cases, consumer textile articles may be imported to Canada without a disclosure label, provided that a sample of the article and certain specified information regarding the article is delivered to a federal government inspector at the port of entry on or before the importation. However, before the imported article may be sold in Canada, the dealer must apply a disclosure label, notify the federal inspector that this has been done, and provide the inspector with a reasonable opportunity to inspect the article. Regulations pursuant to the TLA exempt a number of articles from labelling requirements. As well, certain other sales are exempt where articles are made in compliance with specifications supplied by the buyer and the articles are not intended for resale.
The Food and DrugsAct ("FDAi') regulates the advertising, importation and sale of certain foods, cosmetics, drugs and medical devices. Advertising with respect to certain products listed in a schedule to the FDA is prohibited. These prohibitions relate to advertising of certain foods, drugs, cosmetics and medical devices for illnesses such as alcoholism, cancer and heart disease. The definition of food contained in the FDA is broad enough to include chewing gum and ingredients that may be mixed with food for any purpose. In certain cases, a food may become a drug for the purposes of the FDA. This will occur if medicinal claims are being made in connection therewith. Medicinal claims must be substantiated through scientific study and a pre-approval process through the Health Protection Branch of the Department of Health and Welfare. The FDA also contains stringent standards for the preparation of food and drugs. There are also regulations regarding the labelling, advertising and packaging of foods, drugs, cosmetics and medical devices.
INTELLECTUAL PROPERTY LEGISLATION The Trade Marks Actdefines a trade mark as a mark that is used for the purpose of distinguishing wares or services manufactured, sold, leased, hired or performed by the owner of a trade mark from similar wares or services of others. Registration in Canada extends trade mark protection to all of Canada. Unregistered trade marks have intellectual property rights. However, such rights only extend to the geographical locations in which the trade mark is made known in Canada. In addition, concern over unregistered trade marks generally arises where another is using a similar mark. Al1 essential elements for a passing off action are often difficult to establish. It is often appropriate for a foreign corporation to register a trade mark even when it is not carrying on business in Canada. If a foreign corporation grants rights to use or sell a product bearing a trade mark, it is often prudent to have the trade mark registered in Canada as the property of the foreign owner. Licence rights and user agreements then clarify the right of the owner to enforce its trade mark exclusivity when the distribution arrangement is terminated. A person seeking registration of a trade mark can obtain registration if the trade mark has been used or made known in Canada, has been duly registered in its country of origin (which country must be a member of the Paris Convention for the Protection of Industrial Property), or is actually used in Canada after the allowance of the application but before registration of the trade mark. As in other jurisdictions, a trade mark will not be registerable if it is clearly descriptive or deceptively misdescriptive of the character, quality, or the place of origin of the related wares or services, or of the conditions of or the persons employed in the production of such wares or services. Trade marks are also not registerable if they are confusing with a registered trade mark. Registration provides the owner with the right to exclusive use of the trade mark throughout Canada for 15 years in respect of the wares and services for which it was registered. Registration may be renewed for further periods of 15 years.
Under the Copyright Act (Canada) copyright means the sole right to produce or reproduce in any material form, perform, or deliver in public or publish, a work or any substantial part of the work. Copyright arises upon the creation of a particular work and generally subsists for the life of the creator and for 50 years after his or her death. A copyright owner can bring an action for infringement against any person who, without the consent of the owner, copies the whole or a substantial part of a copyrighted work, or sells, leases, distributes, exhibits by way of trade or imports for sale or hire into Canada any work that to his/her knowledge infringes copyright or would infringe copyright if it had been made in Canada. Although registration is not a prerequisite to copyright protection, it is deemed to give a potential infringer reasonable grounds for suspecting that copyright subsists in the material. If it can be shown that an infringer was not aware or did not have reasonable grounds for suspecting the subsistence of the copyright, the owner can only be awarded an injunction. Alternatively, if it can be shown that the infringer had knowledge of the copyright, a copyright owner may be entitled to an injunction, damages, an order for the detention of imported infringing copies, an accounting for profits, recovery of infringing copies and/or costs.
Under the Patent Act (Canada), an inventor or assignee of the inventor who is first to file an application in respect of an invention will be entitled, subject to certain qualifications, to the grant of a patent. Invention is defined as any new and useful art, process, machine, manufacture or composition of matter or any new and useful improvement thereof. To be patentable, the invention must be novel and not have been obvious to a person skilled in the art or science to which the invention relates. Public disclosure of the invention bars the grant of a patent but is subject to a one year grace period for the applicant. A patent application is laid open to the public 18 months after filing. A patent gives the patentee the exclusive right to make, construct, use and sell the invention for a period of 20 years from the date of filing the application. At the expiration of the 20 year period a new application must be filed.
Under the Industrial Design Act, an original design of an article may be registered. A design is defined as features of shape, configuration, pattern or ornament and any combination of those features that, in a finished article, appeal to and are judged solely by the eye. Registration gives the proprietor the exclusive right to apply an industrial design to an article for purposes of sale. In order for the industrial design to be protected, the design must be applied for within one year from the date of first publication in Canada. Offering or making the design available to the public constitutes publication.
There are several types of investment incentive programmes which are designed to assist investment in new Canadian business initiatives. Various levels of government have direct and indirect assistance programmes. Assistance programmes can involve capital grants or loans or may involve job training supplements. Alternatively, a tax credit system has been established which may effectively permit acceleration of deductibility for capital expenses which might otherwise only be amortized over an extended period.
Eligibility for most direct incentive programmes is often limited to companies incorporated under federal or provincial laws. Capital grants are generally available only for manufacturing or processing projects. Various provinces have targeted industry segments such as tourism projects for eligibility for an indirect capital grant which gives a rebate to shareholders taking minority positions. Labour sponsored venture funds provide a new source of venture capital in Ontario by providing individual investors with tax credits to encourage investment. A large pool of capital has been raised by this method for investment in Ontario. Some municipalities provide incentives for locating a new enterprise within their boundaries. These are negotiated on an individual basis. Often government assistance is available only where it is demonstrated that traditional private sector financing cannot be obtained. Accordingly, unless a project is industryspecific or designed to be implemented in an geographical area designated as eligible for assistance, an applicant for assistance often walks the fine line of asserting a project's viability while demonstrating that no financial institution will provide the necessary funds.
Export Financing and Marketing The Export Development Corporation ("EDC") is a federal crown corporation which has programmes to encourage domestic producers of goods and services to expand beyond Canadian borders. Most of EDC's programmes relate to guarantees of foreign receivables. However, there are several specialized credit products, which include the financing of foreign receivables. EDC operations are not intended to be grant programmes. Accordingly, EDC charges interest and fees similar to other financial institutions. However, many local banks do not like to margin or provide credit for foreign receivables and the EDC s programmes are quite worthwhile. Under another incentive programme, the federal Programme for Export Market Development, export feasibility studies, trade fair sponsorship, and other like services are made available on a subsidized basis to Canadian businesses wishing to expand to markets beyond Canada.
IMMIGRATION RESTRICTIONS FOR NON-CANADIANS To be entitled to work in Canada, a non-resident must either become a landed immigrant, or obtain a valid employment authorization, which is commonly referred to as a work permit. To obtain landed immigrant status, all requirements for immigrating into Canada must be satisfied. The federal Immigration Act defines employment as any activity for which a person receives or might reasonably be expected to receive valuable consideration. Therefore, even if a person is paid by a foreign entity, the activity may fall within the definition of employment. Furthermore, if a foreign entity owns or controls a Canadian business, such ownership does not confer upon the owner the right to staff that Canadian business with citizens of its country of origin. There are a few types of business activities for which certain classes of persons ("Business Visitors") do not require a work permit for entry into Canada. These persons include:
NAFTA extends the concept of Business Visitor to persons who work in a prescribed occupation or activity. The types of activities listed must be limited in their nature or in that the principal beneficiary must be foreign based. Such persons may qualify for entry without a work permit. For example, if a U.S. Iawyer wishes to enter Canada to provide general service functions such as the negotiation of a Canadian contract, he must continue to remain a full-time employee of the U.S. entity and receive no salary or direct remuneration in Canada. Documentation should be provided which will satisfy the inquiries of officials at ports of entry and assure them that both the individual seeking entry, his U.S. employer and, if applicable, the Canadian corporation involved are aware of the limitations on the services which the individual is permitted to perform. Where work permits are required, an employment authorization approval must be obtained. In such situations, the Canadian employer may have to persuade an official at a local Canada Employment Centre that there are no Canadians with the necessary training and experience available to fill the job. Initial employment authorization for the job must be issued at a Canadian consulate or embassy outside of Canada or at a port of entry into Canada. Certain exemptions exist for employees of a related business outside of Canada who are transferred on a temporary basis to a Canadian branch to work at a senior executive level. In certain circumstances, a Canada Employment Centre job clearance will not be required, although a work permit will be necessary. NAFTA broadened the opportunity for people to enter into Canada pursuant to an intracompany transfer. Intra-company transfers occur where foreign corporations second individuals to a Canadian parent, subsidiary branch or affiliate. To obtain a work permit, the individual must be a citizen of the United States and have worked for the foreign corporation for at least one year before seeking entry into Canada. In addition, the individual must be either a senior manager (vice-president or above), play an important role within the corporation, or have specialized knowledge particular to the corporation. Such work permit will be issued for a one or two year period and can be extended from within Canada for up to five years. In order to obtain an intra-company transfer work permit, there are a number of documents which should be prepared for review prior to entry or upon entry into Canada. They include the following: 1. Correspondence from the individual's employer setting out the applicant's present position and length of service with the corporation; 2. Correspondence from the foreign employer's lawyers setting out the legal relationship between the current employer and the potential Canadian employer; 3. Correspondence from the Canadian employer setting out the position and expectations of the transferee; 4. Correspondence from a Canadian lawyer setting out the legal basis for entry under the Immigration Act and any Free Trade Agreement provisions supporting the application; 5. A resume or curriculum vitae of the applicant setting out his or her professional experience; 6. Proof of U.S. citizenship; and 7. All appropriate fees. It should be noted that, as with all NAFTA categories, an intra-company transfer will not permit permanent entry into Canada. Similarly, the work permit issued to an applicant in an intra-company transfer will not permit his or her spouse or any other members of the immediate family to obtain employment in Canada. Under NAFTA, certain professionals may be eligible to enter Canada for employment after obtaining an offer of employment from a Canadian employer, provided that employment is in the profession in which the professional qualifies. These professions are listed in a schedule to NAFTA. Professionals entering Canada pursuant to this provision would normally obtain a one year work permit, which may be extended for a further year. Such a work permit does not exempt the applicant from having all relevant Canadian qualifications, certifications and licences which are required for practice in any particular Canadian jurisdiction. If a work permit is obtained for Canada, the applicant will receive remuneration from a Canadian source. The holder of the work permit will thereby be required to file Canadian tax returns. In addition, all workers having work permits are entitled to receive temporary Canadian social insurance numbers. These social insurance numbers begin with the number 9, indicating that the individual does not have landed immigrant status in Canada.
No quota is set by the Canadian government on the number of immigrants which may be admitted each year from any particular country or region of the world. Anyone can apply to Canada. However, in the case of married applicants, both spouses are required to complete the application for permanent residence. All dependents 19 years of age and over must complete and file a separate application. There are three general admissible classes:
Applicants who may qualify to be sponsored under the family class include spouses, fiances, parents (and each of the foregoing's dependent children), grandparents, brothers, sisters, nephews, nieces, orphaned grandchildren and, in special circumstances, children under 13 years of age who the applicant intends to adopt. In the independent/assisted relative category, a detailed point system has been established. To be admitted to Canada as a permanent resident, a minimum number of assessment points must be obtained (subject to a limited discretion of a Canadian visa officer). Points can be earned for the following:
(b) self-employed persons; or (c) investors. Investors are defined as people who have a proven track record in business and have accumulated sufficient net worth with which they are prepared to commit their funds to an investor program. This investor program is designed to contribute to the creation or continuation of employment opportunities for Canadian citizens or permanent residents, other than the applicant and his or her dependents. Individuals who have a net worth of $500,000 and make a minimum investment of $250,000 to a provincially administered investment fund for a period of three years will qualify for immigration to Nova Scotia, Prince Edward Island, and Saskatchewan. In order to qualify for immigration to Ontario and British Columbia, the investor must have a net worth of $500,000 and make a minimum investment of $350,000. The other provinces did not participate in such investor programs in 1996. A net worth of $500,000 and a minimum of $350,000 locked in for three years is a second tier. Under the investment program, the business opportunity in which the investor wishes to invest must be approved by the provincial government. Criteria for investments vary from province to province. Certain private investment syndicates and government administered venture capital funds may qualify.
Minimum Standards Provincial employment legislation contains minimum standards for all labour and employment relations. Contracts with all employees must contain the minimum standards. Accordingly, Canada cannot be considered a jurisdiction in which there is employment at will, as the minimum standards mandate either notice of the termination of employment or pay in lieu of notice. In addition, the legislative requirements are minimum standards only. The employment standards legislation varies from province to province. However, the following is a list of some issues regulated by the various employment standards acts and their regulations, with examples of the standards set out in the Ontario Employment Standards Act ('IOESA''):
Where 50 or more employees are terminated in any six month period or where an employer, having an annual payroll in excess of $2,500,000, terminates any employee with five years' service, severance pay must be paid in addition to the provision of notice or a payment in lieu of notice. The statutory severance pay obligation is equal to one week's salary for each year of service (up to a maximum of 26 weeks' severance pay). Of course, if an employee is terminated for wilful neglect of duties or wilful misconduct, the employer is not obligated to pay these standards. There are various other exceptions, i.e. fixed term contracts, frustrated contracts, and temporary lay-offs. The above notice obligations are basic minimums. Termination of employment without cause generally requires significantly longer notice periods than those provided by the legislation. These standards have been established by common law through the litigation process on a case-by-case basis. The courts look at various factors, including the employees" age, length of service, position, and their chance of finding replacement employment. The judge will consider all of these to determine the appropriate "reasonable notice'' period. Reasonable notice established by the common law in Canada often greatly exceeds the obligations of U.S. employers to their employees. The grounds for termination for cause in Canada are also severely limited in most circumstances, i.e. where the termination results from acts of dishonesty of the employee, or where the employee has been warned various times, provided with assistance and yet continues to perform below expectations.
In order to avoid the uncertainties that arise in the litigation process, it is highly desirable to have employment contracts with all personnel. In addition to a normal hire letter, such contracts should specifically address issues which arise upon the termination of employment, including termination pay, non-competition and/or nonsolicitation covenants. Without a specified term contained in a contract, an employer will be deemed to have hired the employee for an indefinite term. Similarly, if a written contract for a specified term is not formally renewed and the employee continues to work for the employer, the employment will likely be considered to be a relationship of indefinite term. Unless there is an employment contract specifying the notice period in the event employment is terminated, an employee hired for an indefinite duration may only be terminated upon the provision of reasonable notice (unless such employee is terminated for cause).
According to some provincial statutes, where a Canadian business is acquired and continued in substantially the same business, the purchaser may have various obligations towards the vendor's employees if they are hired on. For example, the purchaser may inherit the vendor's obligations under an existing collective agreement with a certified bargaining agent. Additionally, tenure with the predecessor corporation will be considered for the purposes of determining termination pay required by the employment standards legislation and for determining the amount of reasonable notice which must be given on termination of employment. Thus, a detailed understanding of the nature and relationship of the employees to a business being sold must be considered so that the ongoing obligations can be quantified and factored into the negotiations on the purchase.
In addition to the above, Canadian workplaces are regulated by provincial and federal human rights codes which prohibit discrimination on the basis of, among other items, race, colour, citizenship, creed, sex, sexual orientation, age, record of offence, handicap and marital or family status. Labour Relations The provincial and federal labour relations acts provide employees with more freedom to associate and provide bargaining agents with more protection during organizing drives than in most states. These acts permit automatic certification, regardless of the level of support among the employees, of a bargaining agent if an employer intimidates, coerces or threatens an employee during an organizing drive.
In recent years the Canadian public has become increasingly concerned over the protection of the environment. In response, the federal and provincial governments have enacted environmental legislation which has had a dramatic impact on business and trade. To undertake a business venture in Canada requires information about mandatory requirements, limitations, prohibitions and penalties in relevant environmental laws. The principal enforcement provisions of most environmental regimes are similar to the to those of Ontario's Environmental Protechon Act ("EPA") which prohibits the discharge of a contaminant into the natural environment that causes or is likely to cause an adverse effect. Corporations are caught by a provision which deems any act or omission in the course of employment or in the exercise of power to be an act or omission of the corporation. Directors, employers, employees and even shareholders, may be also be personally liable if they either "caused" or "permitted" the circumstances resulting in the discharge. Directors and officers, however, may avoid personal liability if they are able to show that they have taken measures to avoid and to minimize the effects of an accidental discharge. These measures include implementing, operating and reviewing a corporate environmental management system designed to deal with environmental situations. In an effort to enforce compliance and reduce the damage from a discharge most environmental statutes contain a requirement to immediately report a discharge or spill to the relevant authorities. To achieve compliance with environmental legislation governmental authorities have been given authority to issue a wide variety of orders, including stop orders, control orders and remediation orders. Penalties, including fines and/or imprisonment may also be imposed where the legislation has been violated. Regulatory orders can be issued against those who cause or permit the pollution or those "responsible for the source of the contaminant". They can also be issued against persons having charge or control of the substance at the time of its discharge and the person who owns or occupies the land on which a discharged substance is located or was located prior to the discharge. Under the EPA orders can be issued against former owners, former occupiers and people who were in management and control of the polluting facility. There is no requirement that the person or entity caused or contributed to the pollution of the property or the pollution created by the facility. The EPA provides guidelines with respect to decommissioning and clean-up of sites and provides for the issuance of permits relating to waste disposal and transport. Businesses may prepare risk assessments for negotiation with regulatory authorities regarding the application of the guidelines to contaminated sites for the purpose of obtaining approval for decommissioning or clean-up plans. Environmental law in Canada is in a continuous state of growth and evolution. Businesses are advised to seek counsel to keep up-to-date on environmental issues and legislation in order to ensure compliance and plan for change.
THE FRENCH LANGUAGE REQUIREMENTS IN THE PROVINCE OF QUEBEC French is the official language of Quebec. The Charter of the French language (the "Charter") (more commonly known as Bill 101) guarantees the predominance of the French language in virtually every field of human, government and business activity within that province.
Contracts pre-determined by one party and standard form printed contracts must be drawn up in French. Similarly, application forms for employment, order forms, invoices and receipts must also be drawn up in French. These documents may be drawn up in another language as well, at the express wish of the parties.
Written communications between an employer and employee must be in French and job offers or promotions must be offered in French. Collective agreements and the schedules attached to them must be drafted in French.
Product Labels and all leaflets, brochures or cards supplied with the product, including such things as directions for use and warranties, must be drafted in French. Other languages may also be used, provided that no inscription in another language is given greater prominence than that in French. These rules do not apply to inscriptions relating to products intended for a market outside Quebec.
In general, catalogues, brochures, folders, commercial directories and any similar publications must be drawn up in French. However, if such documents are made available or distributed to the public by way of mass mail or door-to-door delivery, they may be in two separate versions (one exclusively in French and the other exclusively in the other language), provided that the French version is no less accessible and of the same quality as the English version.
In general, most public signs and posters and commercial advertising may be in both French and another language, provided that the French is "markedly predominantii, as defined by the Regulations. However, there are two situations where commercial advertising must be exclusively in French. Commercial advertising displayed on billboards, signs or posters of 16 square metres or more and visible from any highway (unless it is displayed on the firm's premises) and commercial advertising on or in any public means of transportation or access thereto must be solely in French.
A French corporate name is required for a company's incorporation in Quebec; an English name may be used in addition to the French name. Under the Charter, a firm's name must be in French, but a version in another language may accompany it, so long as the French version appears at least as prominently. When another language is permitted to be used in public signs and posters and commercial advertising, the use of a firm name in a language other than French is also permitted. When texts and documents are drawn up in a language other than French, the firm name may appear in the other language, without the French version.
Firms employing 50 or more people in Quebec for a period of six months must register with the Office de le Langue Francaise. The Office will issue a francization certificate if it concludes that the use of French is generalized at all levels of the firm. If the Office considers that the use of French is not so generalized, the firm must adopt a francization programme. Firms employing 100 or more people must form a francization committee composed of six or more people. The committee's responsibilities include analyzing the linguistic situation in the firm, devising and supervising the implementation of a francization programme, and ensuring that the use of French remains generalized at all levels of the firm.
Globalization of the economy in the era of free trade with the U.S. and Mexico and freer trade with other countries has lowered many of the barriers to entering into the Canadian market. However, proximity to the United States and similarities in lifestyle and economic aspirations should not fool the unwary investor. The political framework of Canada is more volatile than the United States, and the social safety net can be significantly more supportive in health, education, welfare and other areas. Accordingly, Canadian legislation and common law provides significant protection for individuals and attempts to preserve cultural heritage groups. For example, individuals' protection under employment standards legislation is generally more exhaustive than most jurisdictions. The entrenchment of bicultural and multicultural ideals is manifested in laws running the gamut from packaging and labelling to education and the judicial system. Sensitivity to the cultural, administrative and legislative differences will assist an enterprise's entrance into the Canadian market. The foreign investor must explore the differences and the competitive advantages of Canada. There are signposts and guides readily available for assistance. Do not hesitate to use them to your advantage.
|
|
|
|
|
|
|
Enhance Immigration and Documentation Consultants© 2001 |
|