Vol. 132, No. 51 — December 19, 1998

Regulations Amending the Immigration Regulations, 1978

Statutory Authority

Immigration Act

Sponsoring Department

Department of Citizenship and Immigration

REGULATORY IMPACT
ANALYSIS STATEMENT

Description

The Immigrant Investor Program (the Program) provides an opportunity for experienced business persons to immigrate to Canada after making a substantial investment in a provincial government-administered venture capital fund.

Quebec operates its own immigrant investor program under the authority of the Canada-Quebec Accord Relating to Immigration and Temporary Admission of Aliens. Quebec undertakes in the Accord to administer its investor program in a manner consistent with the spirit and objectives of the federal Program.

On March 31, 1999, the federal Program will close for new investment by immigrant investors. These regulations establish a redesigned Program to replace the current Program on April 1, 1999. All provinces and territories will be eligible to participate in the redesigned Program.

1. Immigrant Investor Program

The investor class is part of Canada's economic stream of immigration, which comprises investors, entrepreneurs, self-employed persons and skilled workers. The Program seeks to promote economic growth in all regions of Canada by attracting experienced business persons and new investment capital to Canada. Investors must have successful business experience and a net worth (accumulated by their own endeavours) of at least $500,000. Since the Program began in 1986, over $4.22 billion have been invested by 16 417 investors participating in the Program.

Current regulations require investors to make a minimum investment for five years in a provincial government-administered venture capital fund. Each fund pools investor money and invests in other businesses as permitted by federal regulations and provincial guidelines. Funds are aggressively marketed outside Canada as they compete to attract investors.

Citizenship and Immigration Canada (CIC) approval is required before a fund can participate in the Program. Once approved, a fund may solicit investment from investors for a specific marketing period. CIC monitors the funds and may take enforcement action to obtain compliance with the regulations.

Three minimum investment amounts are offered to encourage investment in all provinces. In British Columbia, Ontario and Quebec (Tier II) the minimum investment is $350,000. In the remaining provinces (Tier I) the minimum investment is $250,000. In all provinces, if the return of an investor's money is guaranteed by a third party, the minimum investment is $500,000 (Tier III).

2. The need for Program redesign

The Immigrant Investor Program began in 1986 with a simple structure and the objective of putting immigrant investor money to work in Canadian small- and medium-sized businesses. The Program was primarily controlled by administrative guidelines. Within a few years, hundreds of millions of dollars were raised annually and the Program became vulnerable to abuse. Independent studies and internal reviews identified a number of flaws in the design and operation of the Program, while non-compliance with Program rules reduced economic benefit. In response, changes were introduced to the Program that made it both highly regulated and technically complicated. Substantial federal and provincial resources are now required to administer the Program.

Originally, investors could invest directly in eligible businesses or in venture capital funds administered either privately or by provincial governments. In November 1994, CIC announced its intention to redesign the Program and imposed a moratorium on the approval of new businesses and funds (private or government-administered). Businesses and funds approved before the moratorium were permitted to continue to accept new immigrant investors until June 30, 1996. On July 1, 1996, the current Program, which is restricted to provincial funds, was introduced as an interim measure while work on the redesign continued.

Allowing only provincial funds has eliminated the worst financial abuses in the Program, but more needs to be done to simplify Program administration and increase economic benefit. These objectives are difficult to realize with the current structure. Investors are reluctant to invest in the small- and medium-sized businesses the Program was intended to benefit. To attract investors, funds have been driven to low risk investments with little economic benefit. Considerable federal and provincial resources are expended to analyse and monitor complicated financing and investment schemes that test the limits of the regulations.

3. The redesigned Immigrant Investor Program

The broad objectives in redesigning the Program were:

(a) to increase the economic benefit;

(b) to further reduce the potential for abuse;

(c) to reduce the level of government resources required to administer the Program; and

(d) to offer provinces the opportunity to use investor money according to provincial economic priorities.

The redesigned Program addresses these objectives while retaining the fundamental intent of the original Program: experienced business people are provided with a vehicle to immigrate to Canada and to create economic benefit by making substantial investments in Canada.

A simpler Program is introduced by these regulations. Investors will deposit $500,000 at a single federal window (i.e. CIC), which will act as agent for approved provincial funds. CIC will subsequently distribute the money among the funds. The funds will invest their allocations to create or continue employment in order to develop their economies without the current federally imposed restrictions. After five years, the funds will repay CIC, and CIC will repay investors. Participating provinces will enter into agreements whereby they will ultimately be responsible for their own fund's repayment to investors.

The major changes in the regulations are:

— the investment is increased to $500,000 for all investors, regardless of province of investment (no tier system);

— investor minimum net worth is increased to $1 million;

— a single federal window to accept investors' money is created;

— investments are subsequently allocated to approved provincial funds;

— detailed federal rules regarding uses of investors' money are eliminated;

— the federal selection process is applied exclusively to those who invest in the federal program; and

— the Quebec selection process is applied exclusively to those who invest in the Quebec program.

4. Overview of the redesigned Program

The regulations require CIC to act as agent on behalf of provincial funds and make changes to the "investor" definition. The extensive regulations governing the current Program are repealed but continue to apply to previously approved businesses and funds.

(a) The single window investment model

Under the new regime, CIC will act as agent on behalf of provincial funds. A single federal window will replace the numerous funds currently available to investors. Prior to visa issuance, all immigrant investors will pay $500,000 to the Receiver General for Canada. CIC will prepare and deliver to the investor a debt obligation in the amount of $500,000, repayable (without interest) 30 days after the expiry of the allocation period. The allocation period will commence on the first business day of the second month following the month the investor lands in Canada. The security is not refundable after landing.

The $500,000 will be refunded to the investor before landing if:

After the investor's landing in Canada, CIC will allocate immigrant investment to provincial funds according to an allocation formula: 50 percent divided equally among approved funds and 50 percent distributed according to provincial gross domestic product. Investors will be informed of the share of their investment allocated to each province via the debt obligation prepared and delivered to them by CIC.

(b) Investors

An investor's required minimum net worth (accumulated through their own endeavours) is increased to $1,000,000 (currently $500,000 or $700,000 for Tier III investments).

The tier system is eliminated and the investment is increased to $500,000 for all investors regardless of the province of investment. Guaranteed investments (Tier III) are also eliminated.

The current regulations regarding an "investor in a province" (meaning a province that has signed an immigration agreement with the federal government respecting the selection of immigrants pursuant to subsection 108(2) of the Immigration Act) are unchanged. An investment by an investor in a province continues to be subject to the rules established by the province. Quebec is the only province with such an agreement.

Investors must now invest in the federal Program in order to be selected federally. Previously, investors could invest in the Quebec Program and be selected federally. This regulatory amendment harmonizes federal requirements with Quebec's regulations, which require all investors assessed under its requirements to invest exclusively in its program.

(c) The Quebec Program

Quebec has agreed to harmonize its regulations in terms of the increased investment amount of $500,000 and the investor net worth of $1 million.

(d) Consequential amendments and transitional rules

To simplify the regulations and minimize the confusion between the current Program and the redesigned Program, regulations applicable only to the current Program are repealed. The regulations provide that the repealed regulations still apply to businesses and funds approved prior to April 1, 1999. Some of these businesses and funds will operate for at least five more years until investors' hold periods expire.

Alternatives

(a) Alternatives to regulating

There are no workable alternatives to a regulatory framework for the Immigrant Investor Program. Prior to 1993, most Program rules were contained in administrative guidelines. Guidelines proved to be ineffective and were consequently converted to enforceable regulations. The simpler structure of the redesigned Program requires substantially fewer regulations than the current Program.

(b) Alternatives to the redesigned Program

In redesigning the Program a number of options were considered:

Benefits and Costs

Benefits

The regulations ensure that the Immigrant Investor Program continues to provide an opportunity for experienced business persons with substantial investment capital to immigrate to Canada.

Economic benefit will increase. Provinces may now use investor money according to provincial economic priorities in order to create or continue employment without the need to compete with investment products offered by other funds.

The potential for abuse is greatly reduced. Money will be paid directly to CIC and then allocated for provincial investment. Provincial funds will be responsible for repayment back to CIC for subsequent repayment to investors.

The simpler structure will require significantly fewer federal and provincial resources to administer. Overseas processing of investor applications is also simplified. Visa officers will be able to quickly verify if the investment has been made, to ensure that immigrant visas are issued only after the money has been received.

Increasing investors' minimum net worth will ensure that investors have sufficient capital to participate in the Canadian economy beyond their initial investment.

Costs

Immigrants' investment choices in the federal program will be limited in that only one option is available. Direct investment in a business or provincial fund will not be possible. The cost of investment will increase to $500,000 for immigrant applicants. This is offset, however, by the commitment of provincial funds to repay investors' principal after five years.

Consultation

The provinces have been consulted throughout the redesign process through the Federal-Provincial Business Immigration Working Group. The responses to the March 22, 1997, proposal provided insight into the concerns of a wide range of interested parties and were also considered in the redesign.

In January 1998, the report of the Immigration Legislative Review Advisory Group, "Not Just Numbers", was released. The report included recommendations for the redesign of the Immigrant Investor Program. The Minister of Citizenship and Immigration held public meetings to receive comments on the report. Written submissions were also received from numerous interested parties. These regulations are consistent with the Advisory Group's recommendations.

Compliance and Enforcement

Provincial funds will be responsible for investment of investor money. Agreements between CIC, provincial funds and participating provinces will define responsibilities and obligations. Funds will report annually to CIC on the use of investor money.

Visa officers will ensure that the $500,000 investment is made prior to visa issuance. The Immigration Act provides enforcement powers and penalties to ensure compliance with the legislation.

Contact

Don Myatt, Director, Business Immigration Division, Citizenship and Immigration Canada, Jean Edmonds Tower North, 7th Floor, 300 Slater Street, Ottawa, Ontario K1A 1L1, (613) 957-0001 (Telephone), (613) 941-9014 (Facsimile).

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to subsection 114(1) (see footnote a) of the Immigration Act, proposes to make the annexed Regulations Amending the Immigration Regulations, 1978.

Any interested person may make representations concerning the proposed Regulations within 45 days after the date of publication of this notice. All such representations must be addressed to the Director, Business Immigration Division, Citizenship and Immigration Canada, Jean Edmonds Tower North, 7th Floor, 300 Slater Street, Ottawa, Ontario K1A 1L1, and cite the Canada Gazette, Part I, and the date of this notice.

December 10, 1998

MARC O'SULLIVAN
Assistant Clerk of the Privy Council

REGULATIONS AMENDING THE IMMIGRATION REGULATIONS, 1978

AMENDMENTS

1. (1) The definitions "active business operations" (see footnote 1), "approved business" (see footnote 2), "artificial transaction" (see footnote 3), "Canadian controlled" (see footnote 4), "Canadian financial institution" (see footnote 5), "eligible business" (see footnote 6), "escrow agent" (see footnote 7), "final disposition" (see footnote 8), "financial statements" (see footnote 9), "fund manager" (see footnote 10), "government-administered venture capital fund" (see footnote 11), "guarantee" (see footnote 12), "material fact" (see footnote 13), "minimum holding period" (see footnote 14), "minimum investment" (see footnote 15), "offering memorandum" (see footnote 16), "offering period" (see footnote 17), "ordinarily resident" (see footnote 18), "privately administered venture capital fund" (see footnote 19) and "related person" (see footnote 20) in subsection 2(1) of the Immigration Regulations, 1978 (see footnote 21) are repealed.

(2) The definitions "approved fund" (see footnote 22), "fund" (see footnote 23), "investor" (see footnote 24) and "investor in a province" (see footnote 25) in subsection 2(1) of the Regulations are replaced by the following:

"approved fund" means a fund that is approved by the Minister under section 6.12; (fonds agréé)

"fund" means a corporation that is controlled by the government of a province and that is authorized to create or continue employment in Canada in order to foster the development of a strong and viable economy; (fonds)

"investor" means an immigrant who

(a) has successfully operated, controlled or directed a business,

(b) indicates to the Minister, in writing, that they intend to make an investment or have made an investment, and

(c) has a net worth, accumulated by their own endeavours, of at least $1,000,000; (investisseur)

"investor in a province" means an investor who indicates, in writing, that they intend to make an investment or who has made an investment in a province the government of which has, under subsection 108(2) of the Act, entered into an agreement with the Minister whereby the province has sole responsibility for the selection of immigrant investors; (investisseur d'une province)

(3) Subsection 2(1) of the Regulations is amended by adding the following in alphabetical order:

"agent" means, with respect to a fund, the Minister acting as agent on behalf of a fund that has been approved by a province other than Quebec or the Minister acting as mandatary on behalf of a fund that has been approved by the province of Quebec; (mandataire)

"allocation period" means, with respect to the provincial allocation of an investor, the period of five years beginning on the first day of the second month after the month in which the investor informs the approved fund, through the agent, that the investor or any accompanying dependant was granted landing; (période d'allocation)

"debt obligation" has the same meaning as in subsection 2(1) of the Canada Business Corporations Act; (titre de créance)

"investment" means, with respect to an investor, a sum of $500,000 that

(a) in the case of an investor other than an investor in a province, is paid by the investor to the agent for allocation to all approved funds in existence as of the date the allocation period begins and that is not refundable during the allocation period, and

(b) in the case of an investor in a province, is invested by the investor in accordance with an investment proposal within the meaning of the law of the province and is not refundable for a period of at least five years, as calculated in accordance with the laws of the province; (placement)

"provincial allocation" means, with respect to an investor in relation to an approved fund, the portion of the investor's investment in the approved fund calculated in accordance with subsection (5); (allocation provinciale)

(4) Subsections 2(5) to (6.2) (see footnote 26) of the Regulations are replaced by the following:

(5) For purposes of the definition "provincial allocation" in subsection (1), the provincial allocation shall be calculated as of the first day of the allocation period in accordance with the formula

A + B

where

A equals $250,000 divided by the number of approved funds that are not suspended; and

B equals $250,000 multiplied by the gross domestic product at market prices of the province that has approved the non-suspended fund, divided by the total of the gross domestic products at market prices of all the provinces that have approved a fund that is not suspended.

(6) For the purpose of subsection (5), the gross domestic product is that for the calendar year before the calendar year that immediately precedes the date of provincial allocation, as set out in the table entitled "Provincial accounts GDP at market prices by province (millions of dollars)" in the Canadian Economic Observer Historical Statistical Supplement, published by Statistics Canada.

(5) Subsections 2(8) (see footnote 27) and (9) (see footnote 28) of the Regulations are repealed.

2. Section 2.01 (see footnote 29) of the Regulations is replaced by the following:

2.01 If an immigrant has, before April 1, 1999, applied for an immigrant visa as an investor and has signed any document referred to in clause 1(v)(iii)(A) of Schedule X, as that Schedule read immediately before that date, or, in the case of an investor in a province, has signed an investment agreement in accordance with the law of the province, the relevant provisions of these Regulations respecting an applicant for an immigrant visa as investor, an approved business, an investor, an investor in a province, a fund manager, an eligible business, an approved fund, a fund, an escrow agent, a privately administered venture capital fund or a government-administered venture capital fund continue to apply as they read immediately before April 1, 1999 to all persons governed by their application before that date.

3. Sections 6.12 to 6.19 (see footnote 30) of the Regulations are replaced by the following:

APPROVAL OF FUNDS

6.12 The Minister is authorized to approve a fund if

(a) the fund has been approved by a province;

(b) that province has entered into an agreement with the fund whereby the province agrees that, in the event of the default of the fund to transfer the provincial allocation to the agent in accordance with paragraph 6.13(f), the province will transfer to the agent an amount equal to the provincial allocation in order to repay the investor under paragraph 6.13(h);

(c) the fund to be approved will be the only non-suspended approved fund in the province; and

(d) the fund has entered into an agreement with the Minister designating the Minister as agent for the purpose of

6.13 An approval of a fund under section 6.12, whether or not the fund has been suspended, is subject to the following terms and conditions:

(a) the approved fund shall receive the provincial allocation through the agent;

(b) the approved fund shall, through the agent, repay the provincial allocation to the investor within 60 days after the request for repayment by an investor if

(c) on the first day of the allocation period, an approved fund that is not suspended shall receive, through the agent, the provincial allocation;

(d) on the first day of the allocation period, an approved fund that receives the provincial allocation shall issue to the investor, through the agent, a debt obligation that is in an amount equal to the provincial allocation, that is due and payable 30 days after the expiry of the allocation period and that cannot be transferred but can be pledged as security;

(e) during the allocation period, the approved fund shall use the provincial allocation for the purpose of creating or continuing employment in Canada to foster the development of a strong and viable economy;

(f) at the end of the allocation period, the approved fund shall transfer the provincial allocation to the agent for repayment in accordance with paragraph (h);

(g) in the event of default by the approved fund to transfer the provincial allocation to the agent under paragraph (f), the province shall transfer an amount equal to the provincial allocation to the agent for repayment in accordance with paragraph (h); and

(h) 30 days after the expiry of the allocation period, the agent shall repay the provincial allocation to the investor thereby extinguishing the debt obligation in respect of that provincial allocation.

SUSPENSION OF APPROVAL OF FUNDS

6.14 (1) The Minister shall suspend the approval of a fund if

(a) the province that approved the fund has withdrawn its approval;

(b) the fund no longer qualifies as a fund as that term is defined in subsection 2(1);

(c) the agreement between the fund and the province referred to in paragraph 6.12(b) no longer exists;

(d) the agreement between the fund and the Minister referred to in paragraph 6.12(d) no longer exists; or

(e) the fund is not in compliance with the terms and conditions set out in section 6.13.

(2) If the Minister suspends an approval under subsection (1), the Minister is authorized to impose additional terms and conditions on the fund respecting the lifting of the suspension.

(3) If the Minister has imposed additional terms and conditions under subsection (2) and the fund has complied with those additional terms and conditions, the Minister shall lift the suspension of the approval.

REVOCATION OF APPROVAL OF FUNDS

6.15 The Minister shall revoke the approval of a fund if

(a) the approved fund has repaid the provincial allocation to all its investors;

(b) the approval of the fund has been suspended; and

(c) if applicable, the approved fund did not comply with the additional terms and conditions imposed under subsection 6.14(2).

ADDITIONAL TERMS AND CONDITIONS

6.16 The Minister is authorized to impose terms and conditions in relation to any approval of a fund in addition to those set out in sections 6.12 and 6.13.

4. (1) Paragraph 9(1)(b) of the Regulations is amended by adding the word "and" at the end of subparagraph (ii) and by replacing subparagraphs (iii) (see footnote 31) and (iv) (see footnote 32) with the following:

(2) Subparagraph 9(1)(c)(ii) (see footnote 33) of the Regulations is replaced by the following:

5. Paragraphs 23(1)(b) (see footnote 34) and (b.1) (see footnote 35) of the Regulations are replaced by the following:

(b) if the immigrant is an investor, that the investor cannot transfer but may pledge the debt obligation during the period beginning on the day of the investor's landing and ending on

6. Schedules X (see footnote 36) and XI (see footnote 37) of the Regulations are repealed.

COMING INTO FORCE

7. These Regulations come into force on April 1, 1999.

[51-1-o]

Footnote a

S.C., 1992, c. 49, ss. 102(1)

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