CANADA Law and Practice Contributed by: Grant McGlaughlin, Sean Stevens and Claire Gowdy, Fasken
2. Private Equity Developments 2.1 Impact of Legal Developments on Funds and Transactions Tax Matters In 2023, Canada enacted new rules requiring taxpay - ers to provide written notice to the Canada Revenue Agency (CRA) of certain transactions. Two general categories of transactions are subject to these new rules. The first category is “reportable” transactions. A reportable transaction is generally any transaction where (i) one of the main purposes of the transaction is to obtain a tax benefit and (ii) one of three “hall - marks” is present in the transaction. These hallmarks are complex, but a hallmark will generally be present if: • an adviser or promotor is entitled to a fee based on the tax benefit realised or the number of people who benefit from the tax benefit (this is generally referred to as the “Contingency Fee” hallmark); • an adviser or promoter who was involved in the implementation of the transaction has obtained confidentiality protection that prohibits the disclo - sure of the transaction (this is generally referred to as the “Confidential Protection” hallmark); or • a party who is involved in the transaction is entitled to insurance or protection against the failure of the transaction to obtain a tax benefit (this is generally referred to as the “Contractual Protection” hall - mark). If the main purpose of a transaction, including one transaction within a series of related transactions, is to obtain a tax benefit and any one of the hallmarks is present, the taxpayers involved in the transaction as well as their advisers must each file a report with the CRA within prescribed time limits (generally 90 days after the transaction was entered into). A fail - ure to do so triggers a number of potential sanctions including monetary penalties, an extension of the tax assessment period and a deemed waiver of certain defences to tax assessments based on the General Anti-Avoidance Rule (GAAR) set out in the Income Tax Act (Canada).
Canada Act is aimed at facilitating the development of such “nation-building” projects and infrastructure as seaports, airports, highways, oil pipelines, nuclear plants and critical minerals mines. The goal is to ensure that projects deemed to be in the national interest are advanced through a streamlined and accelerated reg - ulatory approval process. The Free Trade and Labour Mobility Act is aimed at dismantling regulations that impede the free flow of goods, services and workers within Canada (ie, from province to province, includ - ing Canada’s three northern territories). The Act aligns federal rules and regulations with those of the prov - inces and territories. (3) Energy Sector Investment A key campaign pledge and early priority of Canada’s new federal government is to build Canada into an energy superpower in both clean and conventional energy. Canada is already the world’s fourth largest producer of oil and the world’s fifth largest producer of natural gas. (4) Dealmaking Amid Fluctuating International Trade Policy Recent shifts in North American and global trade dynamics triggered by the United States’ evolving trade policies are raising multifaceted questions for M&A. Trade-related issues can vary widely and impact different targets and transactions in various ways. The task for buyers, sellers and their counsel is whether and how to adjust their negotiation, deal structure and risk allocation strategies amid these relatively novel circumstances. Deal points and strategic issues for consideration can include: (1) valuation and due dili - gence; (2) supply chain contracts and trade-related contractual terms; (3) potentially impacted representa - tions and warranties; (4) for deals involving an interim period, the potential for disclosure schedule updates; (5) impact on representation and warranty insurance policies, terms and coverage; (6) ordinary course of business clauses; (7) material adverse effect clauses; (9) closing conditions, and (1) earn-outs, holdbacks and escrows. Overall, informed and tactical negotia - tion, drafting and strategy will mitigate trade-related risks and allow opportunities to be seized. Uncommon trade policy uncertainty has disrupted some transac - tions, but business has gone on and deal volumes have remained strong in the first half of 2025.
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