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DOING BUSINESS IN ATLANTIC CANADA

SERVICE FIRSTClients expect and have the right to receive full value for the fee charged. We have earned a reputation forproviding value to business, the public sector and individuals. Service First defines the standards of client service atStewart McKelvey. Our lawyers and staff hold themselves accountable to deliver the followingstandards of service to each of our clients:1. We will work to provide you with the highest qualityof confidential, ethical legal services.2. We will work with you to develop a full understandingof your business / organization and expectations.3. We will pursue your work conscientiously and withoutdelay. We will work together with you to establish timespecific goals and objectives that meet your needs.4. We will delegate work to our lawyers who have thelegal expertise and experience appropriate to both thenature and complexity of the matter and our understandingof your expectations. Where deemed appropriateby you, we will designate a qualified lawyer asan alternative service contact to ensure continuity ofservice when the lawyer responsible for your matter isnot available. At your request, we will work with youto develop practical fee estimates. We will alwaysstrive to add value.5. At your request we will provide documentation thatoutlines the scope of the legal services to be provided;the potential timeline for handling the matter; a list ofthe client team members and alternate service contact,with their fields of expertise; and our lawyers’ contactinformation.6. We will meet and strive to exceed your expectations andalways welcome your feedback. We will from time totime, seek from you, either formally or informally, anassessment of our performance.7. We will maintain effective channels of communicationsincluding keeping you informed of all significant developmentsin the legal matter and responding to yourcontact in a timely fashion.8. Accounts will be easy to understand. We will alwaysbe receptive to client feedback on our billing practices.When issues arise, we will treat them seriously andrespond promptly.9. If you are dissatisfied with our services, or if you feel wehave failed to meet any of these commitments, we askthat you call the service lawyer on your matter, thealternate service lawyer, the local Practice Manager orManaging Partner to discuss your concern. We willhonestly and fairly address your concerns.

Stewart McKelveyDoing Business in Atlantic CanadaPrefaceStewart McKelvey proudly celebrates over 19 years of innovative leadership as AtlanticCanada's first and largest regional law firm. With a distinguished heritage reaching back toCanada's Confederation, our firm has established an international reputation for generatingresults. More than 230 lawyers and 350 staff in our six locations have a single objective: thebest results for our clients.Stewart McKelvey offers professional services in all areas of the law for which there is demandin Atlantic Canada. Our commitment to excellence is enhanced by our understanding of each ofthe Atlantic Canadian centres we are in, its history, its traditions, and its values, as well as theneeds of our clients. Our goal is to always understand the business of, and the issues affecting,our clients - so that we can provide them with the best, most cost-effective solutions. We investin our people, our technology and our business and community relationships to guarantee thecontinued delivery of quality service that our clients have come to expect.Doing Business in Atlantic Canada is intended to provide a general introduction togeographic, economic and legal factors which affect the conduct of business in Atlantic Canada.Our guide does not purport to be an exhaustive study of all such factors. Business practicesand laws can change on short notice, with the result that the information contained in this guidemay not necessarily remain accurate. For reader convenience, electronic versions of this guidemay also contain links to third party sites. While these links were correct at the time ofpublication, internet sites (and information contained at those sites) change from time to time;and we cannot be responsible for the content of such sites.Readers are advised not to rely on this guide in planning any specific business or othertransactions. In such circumstances, the advice of qualified legal counsel should be obtained.AcknowledgmentsThe maps in Chapter One were taken from The Atlas of Canada, © 2005, Her Majesty theQueen in Right of Canada with permission of Natural Resources Canada.© Copyright Stewart McKelvey 2009. All rights reserved.

Stewart McKelveyDoing Business in Atlantic CanadaCONTENTSCHAPTER 1 – INTRODUCTION .................................................................................................................. 1Basic Facts: Canada 1Basic Facts: New Brunswick 2Basic Facts: Prince Edward Island 3Basic Facts: Nova Scotia 4Basic Facts: Newfoundland and Labrador 5The Canadian Political and Judicial Systems 6Why Do Business in Atlantic Canada? 7Business Costs......................................................................................................................... 7Workforce ................................................................................................................................. 8Location.................................................................................................................................... 8Infrastructure ............................................................................................................................ 8Energy/Utilities ......................................................................................................................... 8Quality of Life ........................................................................................................................... 8Incentives ................................................................................................................................. 9CHAPTER 2 - FORMS OF BUSINESS ORGANIZATIONS....................................................................... 10Companies 10Overview of Incorporation ...................................................................................................... 10Federal or Provincial Incorporation ........................................................................................ 10Provincial Incorporation.......................................................................................................... 11Nova Scotia Unlimited Companies......................................................................................... 12Extra-Provincial Incorporations .............................................................................................. 13Other Business Structures 13Sole Proprietorship................................................................................................................. 13Partnership ............................................................................................................................. 14Limited Partnership ................................................................................................................ 14Joint Venture .......................................................................................................................... 15Co-operative Associations ..................................................................................................... 15CHAPTER 3 - REGULATION OF FOREIGN INVESTMENT..................................................................... 16The Investment Review Process 16Other Restrictions on Foreign Ownership 17CHAPTER 4 – IMMIGRATION LAW.......................................................................................................... 19Temporary Work in Canada 19Permanent Entry into Canada 19Business Class....................................................................................................................... 20Skilled Worker Class .............................................................................................................. 20Family Class........................................................................................................................... 20Provincial Nomination............................................................................................................. 21Other Considerations 21CHAPTER 5 – TRADE LAW ...................................................................................................................... 22International Trade 22NAFTA.................................................................................................................................... 22Other Free Trade Agreements ............................................................................................... 22Importing Goods..................................................................................................................... 23Import and Export Controls .................................................................................................... 23Trade Remedies..................................................................................................................... 24International Investment Dispute Resolution ......................................................................... 24Exchange Controls................................................................................................................. 25Provincial Laws ...................................................................................................................... 25Domestic Trade 25Competition Law..................................................................................................................... 25Product Standards and Codes ............................................................................................... 27Page i

Packaging and Labelling Requirements................................................................................. 28Advertising.............................................................................................................................. 28Warranties and Consumer Protection.................................................................................... 28Franchising............................................................................................................................. 30Gift Cards ............................................................................................................................... 32CHAPTER 6 – TAXATION LAW ................................................................................................................ 33Personal Income Tax 33Corporate Taxation 34Sales and Services Tax 40Property and Business Taxes 40Property Transfer Taxes 40CHAPTER 7 – PROPERTY LAW............................................................................................................... 41Real Estate 41Federal law............................................................................................................................. 42Provincial law ......................................................................................................................... 42Personal Property 44CHAPTER 8 – SECURITIES LAW............................................................................................................. 45Regulatory Overview 45Disclosure of Material Information 45Listing Requirements 45Exempt Transactions 45Accredited Investor Exemption .............................................................................................. 46Private Issuer Exemption ....................................................................................................... 46Family, Friends and Business Associates Exemption ........................................................... 47Offering Memorandum Exemption ......................................................................................... 47Minimum Purchase Amount Exemption................................................................................. 47CHAPTER 9 – INTELLECTUAL PROPERTY............................................................................................ 48Intellectual Property Rights 48Trade-marks 48Trade Name vs. Trade-mark .................................................................................................. 48Registered Trade-mark vs. Unregistered Trade-mark ........................................................... 49Losing Trade-mark Rights...................................................................................................... 49Infringing Trade-mark............................................................................................................. 49Copyright 49Exceptions to Infringement..................................................................................................... 50Patents 50Requirements ......................................................................................................................... 51Trade Secrets 51Integrated Circuit Topographies 51Industrial Designs 52Plant Breeders Rights 52CHAPTER 10 – TECHNOLOGY LAW ....................................................................................................... 53Licences and Assignments 53Confidentiality Agreements 53Electronic Information and e-Contracts 53CHAPTER 11 – PRIVACY LAW ................................................................................................................ 55CHAPTER 12 – LABOUR AND EMPLOYMENT LAW.............................................................................. 57Hiring 57Inducement............................................................................................................................. 57Employment Applications – The “Dos and Don’ts” of Recruiting ........................................... 57Employment References – Background Investigations ......................................................... 58Human Rights Considerations ............................................................................................... 58Labour Relations Legislation – Restrictions on Information................................................... 59Unfair Competition / Covenants Not to Compete................................................................... 59Employment Contracts 60Employment Contracts Generally .......................................................................................... 60Limiting Future Liability .......................................................................................................... 60Provincial Statutes 60Employment Standards.......................................................................................................... 60Page ii

Workers’ Compensation......................................................................................................... 60Occupational Health and Safety............................................................................................. 61Labour Relations .................................................................................................................... 62Federal Statutes 63The Canada Labour Code...................................................................................................... 63Human Rights......................................................................................................................... 63Occupational Health and Safety............................................................................................. 64Criminal Code Provisions....................................................................................................... 65Labour Relations .................................................................................................................... 66CHAPTER 13 – ENVIRONMENTAL LAW................................................................................................. 69Regulatory Framework 69Federal Law 69Federal Environmental Legislation......................................................................................... 69Federal Areas of Regulation .................................................................................................. 70Enforcement ........................................................................................................................... 72Environmental Assessments.................................................................................................. 73Liability of Directors and Officers ........................................................................................... 73Provincial Law 74Principal Environmental Legislation ....................................................................................... 74Additional Environmental Legislation ..................................................................................... 76CHAPTER 14 – INSOLVENCY LAW ......................................................................................................... 77Reorganization Proceedings 77BIA Reorganization ................................................................................................................ 77CCAA Reorganization ............................................................................................................ 78Debtor Financing.................................................................................................................... 78Liquidation Proceedings 79BIA Liquidation ....................................................................................................................... 79WURA Liquidation.................................................................................................................. 79Insolvency Legislation Amendments...................................................................................... 79CHAPTER 15 – ABORIGINAL LAW.......................................................................................................... 81Statutory Framework 81Constitution Act, 1867 ............................................................................................................ 81Indian Act ............................................................................................................................... 81Constitution Act, 1982 ............................................................................................................ 81Canadian Charter of Rights and Freedoms ........................................................................... 81Aboriginal Title 81Distinct Land Interest.............................................................................................................. 81Establishing Aboriginal Title ...................................................................................................82Infringing on Aboriginal Title................................................................................................... 82Nature of the Duty to Consult................................................................................................. 82Implications of the Duty to Consult......................................................................................... 83Business Relations between Industry and Aboriginal Groups 83Treaty Rights 83Historical Treaties................................................................................................................... 83Modern Treaties and Comprehensive Land Claims Agreements .......................................... 83Conducting Business On Reserves 84Taxation.................................................................................................................................. 84Financing................................................................................................................................ 85CHAPTER 16 – MUNICIPAL LAW ............................................................................................................ 86Development and Planning 86Municipal Taxation 87APPENDIX: BUSINESS INCENTIVES ..................................................................................................... 88New Brunswick 88Prince Edward Island 90Nova Scotia 93Newfoundland and Labrador 97Canada 100Page iii

CHAPTER 1INTRODUCTION

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaBasic Facts: CanadaCHAPTER 1 – INTRODUCTIONCanada, the world’s second largest country, occupies the upper portion of the North American continent.Its boundaries stretch from the Pacific Ocean in the west to the Atlantic Ocean in the east, to the ArcticOcean in the north and to the USA in the south. It is a federation of 10 provinces and three territories andhas a population of approximately 33 million people. English and French are the official languages ofCanada, meaning that they have equal status in all federal institutions and are the languages usedofficially by the federal government.Canada’s four most easterly provinces form the region known as Atlantic Canada. These provinces are(from west to east) New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador.Atlantic Canada has a population of approximately 2.3 million people.Page 1

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaBasic Facts: New BrunswickNew Brunswick is bounded by Quebec to the north, Nova Scotia to the east and the state of Maine (USA)to the west. It also has more that 5,500 km of coastline stretching between the Gulf of St. Lawrence andthe Bay of Fundy, making up more than 87% of the total New Brunswick boundary.New Brunswick's natural resources are abundant. About 80% of the province is forested, with wood andwood products constituting a vital part of the economy. Fishing, agriculture and mining are also importantcomponents. Leading manufacturing industries include food processing, pulp and paper, sawmills, oilrefining and metal processing. There has also been a recent influx of high-tech industries, and tourismcontinues to be a significant contributor to the economy.New Brunswick is Canada's only province where both English and French are official languages, meaningthat all provincial government services are required to be made available to the public in both languages.New Brunswick has a population of 747,000 people. It is in the Atlantic Time Zone and observes DaylightSaving Time.Page 2

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaBasic Facts: Prince Edward IslandPrince Edward Island lies in the Gulf of St. Lawrence and is surrounded by the other three AtlanticProvinces and the province of Quebec. The Confederation Bridge stretches 13 km across theNorthumberland Strait, connecting Prince Edward Island to New Brunswick. No place in the province ismore than 16 km from the sea. Prince Edward Island is the smallest province of Canada, but with apopulation of 140,000 people it has the highest population density of any Canadian province.The province is known as the “Garden of the Gulf” as 90% of the land is arable. It is a low level islandand has red sandy clay which is excellent for agriculture.The province’s main industries are agriculture, tourism, fishing and forestry. Prince Edward Island is inthe Atlantic Time Zone and observes Daylight Saving Time.Page 3

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaBasic Facts: Nova ScotiaNova Scotia is almost completely surrounded by the Atlantic Ocean. It is comprised of a mainlandpeninsula and the island of Cape Breton. It has a mild maritime climate. Its capital, Halifax, boasts theworld's second largest natural ice-free harbour. Nova Scotia has a population of 938,000 people.Nova Scotia’s economy centres upon natural resources, such as fisheries, oil and gas, forestry andmining. Other major economic sectors include manufacturing and tourism. It also has a highlyspecialized commercial agriculture sector, of which dairy is the largest component. Export commoditiesinclude blueberries, apples and vegetables. Nova Scotia is in the Atlantic Time Zone and observesDaylight Saving Time.Page 4

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaBasic Facts: Newfoundland and LabradorNewfoundland and Labrador consists of the island of Newfoundland and the mainland of Labrador. It isthe most easterly province in Canada. The population of Newfoundland and Labrador is 508,000 people,mostly concentrated on the Avalon Peninsula where the capital city of St. John’s is located. The provincehas a temperate maritime climate.Page 5

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaNewfoundland and Labrador’s economy is highly dependent on the resource sector. Oil and gas, fishproducts, newsprint, mineral products and electricity account for most of the province’s exported goods.However, the value of the services industry has been increasing in recent years due to growth in areassuch as tourism, communications, business and computer services.Newfoundland and Labrador is in the unique position of having two time zones. Labrador is in the AtlanticTime Zone, which is one hour ahead of the Eastern Time Zone. Newfoundland is in the NewfoundlandTime Zone, which is one-half hour ahead of the Atlantic Time Zone. So if it is 1 p.m. in Toronto it will be 2p.m. in Labrador and 2:30 p.m. in Newfoundland. Both Newfoundland and Labrador observe DaylightSaving Time.The Canadian Political and Judicial SystemsCanada has a parliamentary system of democratic government. A former dominion of Great Britain,Canada is a constitutional monarchy, its head of state being the Queen of Canada, Queen Elizabeth II,who is also Queen of Britain, Australia, New Zealand and a number of other Commonwealth nations.Under the Constitution Act, 1867, powers and responsibilities are divided between the federalgovernment and the 10 provincial governments, with the federal government retaining jurisdiction over thethree territories. The federal list of powers under the Constitution generally relates to national matters,such as the regulation of trade and commerce, criminal law and procedure, direct and indirect taxation,banking, currency, defence, navigation and shipping, patents and copyrights. The provincial list ofpowers is generally concerned with local matters, such as municipal institutions, local works andundertakings, education, direct taxation, the administration of justice, property and civil rights, and mattersof a merely local and private nature in the province (including internal trade issues). The Constitution alsoprovides for concurrent federal and provincial jurisdiction in a number of areas, including health, theenvironment, agriculture and immigration.An important element of the Constitution is the Canadian Charter of Rights and Freedoms, which wasadopted in 1982. The Charter guarantees a series of rights and freedoms, subject only to suchreasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.Among the rights and freedoms contained in the Charter are:• fundamental freedoms, including freedom of conscience and religion; freedom of thought, belief,opinion and expression, including freedom of the press and other media of communication;freedom of peaceful assembly; and, freedom of association;• democratic rights, such as the right of citizens to vote in elections for members of the House ofCommons and legislative assemblies;• mobility rights, including the right to live and to seek employment anywhere in Canada;• equality rights;• legal rights, such as the right to be secure against unreasonable search or seizure;• language rights, such as the right to use either of Canada's official languages and the right ofFrench and English linguistic minorities to an education in their language; and• protections for aboriginal peoples' pre-existing rights.The Charter is particularly significant because unlike earlier Canadian human rights legislation, it isentrenched in the Constitution, which is the supreme law of Canada. Laws that are not consistent withthe Constitution (including the Charter) may be found to be invalid.Canada’s system of government has three branches: legislative, executive and judicial. At the federallevel, the legislative branch is represented by the Parliament, which consists of the House of CommonsPage 6

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadaand the Senate. Members of the House of Commons are elected by direct, popular vote to serve forterms of up to five years. Members of the Senate are appointed by the Governor General (the Queen’srepresentative in Canada), with the advice of the Prime Minister and serve until reaching 75 years of age.At the provincial and territorial level, the legislative branch is represented by a single chamber legislativeassembly, whose members are elected by direct, popular vote.The executive branch consists of the head of state (the Queen, as represented by the Governor General),the Prime Minister and the Cabinet. The Prime Minister is the leader of the party which forms thegovernment in the House of Commons. This is usually the party that has the highest number of memberselected. The Cabinet is the federal ministry chosen by the Prime Minister from among the members of hisor her own party sitting in Parliament. The same executive structure exists at the provincial and territoriallevel, with the head of state (the Queen, as represented by the Lieutenant Governor), the Premier (beingthe leader of the party which forms the government in the legislature) and the Cabinet. In Canada, unlikethe United States, some elements of the executive and legislative branches are combined, in that themajority party in the legislature also controls the executive.The judicial branch consists of the Supreme Court of Canada, the Federal Court of Canada, the TaxCourt of Canada and the provincial courts. Each province has its own Court of Appeal, together with anumber of lower level courts which function as the courts of first instance for most criminal and civilmatters. In Canada, the judiciary enjoys complete independence from the other branches of government.With the exception of Quebec, the laws of Canada are derived from two sources: the statute laws asenacted by the federal and provincial legislatures and the “common law”, being the precedentsestablished by the judiciary over time through court decisions. Unlike the rest of Canada, Quebecoperates primarily under a civil code system rather than a common law system. The civil code is a writtentext defining civil laws in the province and has its basis in France’s Napoleonic Code.Why Do Business in Atlantic Canada?There are numerous reasons for choosing to invest in Atlantic Canada including, among others, lowcosts, advanced technological and transportation infrastructures, a highly educated workforce,competitive and reliable energy supplies, geographical location and an excellent quality of life. 1Business CostsAccording to the consulting firm KPMG, Canada leads the G7 group of industrialized countries for lowbusiness costs. While its previous cost advantage relative to the United States has declined somewhat inrecent years due to a strengthening Canadian dollar, it has gained ground relative to European countries.This was the conclusion of KPMG’s 2008 survey, which compared business costs in nine industrializedcountries in North America, Europe and Asia-Pacific, including all G7 countries.The study measured 27 cost components of business operations, such as labour, taxes and utilities, for136 cities worldwide. The basis of comparison was the after-tax cost of start-up and operation for 17different types of business operations over a 10 year planning horizon. Of the cities analyzed in the NewEngland/Atlantic Canada region, almost all the Canadian cities surveyed had lower business costs thantheir U.S. counterparts.Further details of KPMG’s study on international business costs can be found at:www.competitivealternatives.com1 Much of the information contained in this section has been obtained from publications produced by theAtlantic Canada Opportunities Agency. Further details can be accessed at:http://www.acoa.ca/English/investment/InvestmentHome/Pages/MainInvestmentHome.aspxPage 7

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaWorkforceAtlantic Canada has one of the world’s best labour markets, with a skilled workforce of 1.2 million peopleand among the lowest rates of turnover and absenteeism in North America. Atlantic Canada has morepost secondary institutions per capita than anywhere else in Canada. As well, more than 200 differenttraining programs are offered through Atlantic Canada’s community college network. The result is ahighly skilled and educated workforce, a considerable portion of which is bilingual in English and French.LocationAtlantic Canada enjoys an enviable geographic location. More than half the entire North Americanpopulation is within a day’s drive, while access to Europe from our ports is two days quicker than from anyU.S. eastern seaboard port.InfrastructureOur location is complemented by a world-class transportation infrastructure, with fully modern containerports, an extensive highway system, a highly developed air transportation and cargo system, and theeastern terminus for Canadian National Railway, which provides excellent rail connections to the entirecontinent.As well, Canada boasts a very advanced telecommunications infrastructure. For example, it leads the G7countries in broadband penetration. A full range of services is available from telecommunicationsproviders, including voice and data, local, long distance, wireless and satellite services. Pricing fortelecommunication services is very competitive with other industrialized countries as a result of the deregulationof the industry in recent years.Energy/UtilitiesAtlantic Canada has one of North America’s most diverse, reliable and cost-effective energy systems,boasting a mix of hydro, nuclear, oil, coal, diesel and natural gas generating stations. The region also hasthe fastest-growing offshore oil and gas sector in North America. As well, it has three major oil refineries,including Canada’s largest – the Irving Oil Refinery in Saint John, NB, which recently underwent a $1-billion upgrade. Canada’s first liquefied natural gas (LNG) receiving, storage and regasification facilitywas constructed in Saint John, NB and received its first shipment of LNG in June, 2009.Electricity is produced through diverse generating systems, with an installed electricity productioncapacity of 14,000 megawatts. The system is very reliable, with few brown outs or black outs. This isone of the reasons why many U.S. call centres have chosen to locate in Atlantic Canada. Furthermore,electricity costs are the second lowest of the G7 countries according to KPMG’s latest survey.Quality of LifeThe cost of living in Atlantic Canada is 25 to 65% lower than that of other major North American regions.It has the best Housing Affordability Index in Canada, and property taxes are 30% lower than theCanadian and U.S. average.Canadian residents enjoy lower direct health care costs as a result of the publicly funded health insurancesystem, which covers a wide range of health, hospital and physician services. The existence of thissystem provides employers with a competitive cost advantage over those having to provide direct fundingof private employee health insurance programs.Atlantic Canada is also a very safe environment in which to live and do business, with lower rates ofcrime than most other industrialized nations. It offers safe, friendly, family-oriented communities, with anabundance of excellent schools, universities and colleges within the region.Page 8

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaIncentivesThe Atlantic Provinces are open for business and provide many incentives for entrepreneurs orbusinesses to locate in the region. Some incentives are targeted at specific economic sectors, such asmanufacturing, processing and certain service sectors. The federal government also provides supportthrough the Atlantic Canada Opportunities Agency.Unlike most U.S. states, many of the incentives available in Atlantic Canada take the form of forgivableloans, interest-free repayable loans, equity participation, or combinations thereof. Training-relatedincentives, such as in the form of subsidized wages, are also commonly offered in the region.For a detailed survey of available incentive programs in Atlantic Canada, please see the Appendix:Business Incentives.Page 9

CHAPTER 2FORMS OF BUSINESS ORGANIZATIONS

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 2 - FORMS OF BUSINESS ORGANIZATIONSBusinesses in Atlantic Canada can operate through a variety of legal entities, including companies, soleproprietorships, partnerships, limited partnerships, joint ventures and co-operative associations.CompaniesOverview of IncorporationA company is a legal entity that is separate and distinct from the shareholders who contribute to thecompany’s capital. The shareholders exercise ultimate control over the management of the companythrough the election of directors. The directors are responsible for the day to day management of thebusiness and affairs of the company and have a duty to act honestly, in good faith and in the bestinterests of the company. Companies enjoy perpetual succession, meaning that the existence of thecompany continues despite the death of any or all of its shareholders. Further, companies are affordedall the rights of a natural person to own property and the rights to carry on business.There are several advantages to using the corporate form of business organizations as opposed tooperating as a sole proprietor:• An incorporated company offers investors access to a wide range of financing opportunities. Theflexibility that exists with respect to a company’s share structure under either provincial or federalcorporations legislation provides investors with a number of investment options: shares can bevoting or non-voting, can have limited or unlimited participation in equity and can be redeemablefor a fixed price at the option of the company or the holder. The effect of this flexibility is thatvarious classes of shares and debt instruments may be utilized to provide different levels ofshareholder and lender participation in the capitalization of the company and to provide varyingdegrees of risk or opportunity for profit.• Generally speaking, the liability of a shareholder is limited to the amount of that shareholder’scontribution to the company, although the Nova Scotia Companies Act provides for theincorporation of unlimited liability companies (discussed further below).• The control of a company can be easily transferred through transfer of shares.Federal or Provincial IncorporationThe two main sources of company law in Atlantic Canada are provincial and federal legislation. Eachprovince has its own companies legislation, being the Business Corporations Act (“NBBCA”) in NewBrunswick, the Companies Act (“PEICA”) in Prince Edward Island, the Companies Act (“NSCA”) in NovaScotia, and the Corporations Act (“NLCA”) in Newfoundland and Labrador. The federal companieslegislation is the Canada Business Corporations Act (“CBCA”). Companies may be incorporated eitherunder one of the provincial companies statutes or under the federal CBCA. Currently there is littlepractical difference between the provincial and federal powers to incorporate a business. A companyestablished under a provincial companies statute is entitled to carry on business in that province, andgenerally will be required to register in all other jurisdictions in Canada in which it carries on business. Acompany incorporated under federal legislation is empowered to carry on business anywhere in Canada,but it may be required to be registered in any province in which it carries on business.There are certain practical factors which may be present in determining where to incorporate. Oneimportant factor is the requirement for at least 25% of the company’s directors to be Canadian residentsfor incorporation under the CBCA or the NLCA. To qualify as a resident, a person must be either aCanadian citizen or a permanent resident under the federal Immigration and Refugee Protection Act.Subject to some limited exceptions, a person must already be living in Canada in order to be consideredto have resident status. It is possible to avoid these residency requirements by incorporating in NewBrunswick, Prince Edward Island or Nova Scotia, which have no residency requirements. Incorporation inPage 10

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadathese provinces can then be followed by extra-provincial registration in other provinces in which thecompany intends to conduct business.Other factors to consider when determining where to incorporate include the following:• The PEICA requires disclosure of all shareholders having more than five percent of the issuedand outstanding shares of the company, both at the time of incorporation and subsequently on anannual basis. However, the identity of shareholders need not be disclosed under the NSCA,NBBCA, NLCA and CBCA, either at the time of incorporation or subsequently.• Variances exist between the various jurisdictions with respect to corporate matters such asminority shareholder rights and dissenting rights. For example, shareholders having a grievanceagainst other shareholders or directors of a federally incorporated company have their right torecourse set out in the CBCA, while shareholders under the PEICA must generally rely on thecommon law for protection of their rights.• Directors of CBCA companies are personally liable for unpaid wages of employees of thecompany, to a specified maximum. There is no corresponding liability in any of the provincialcompanies legislation.• The provincial criteria for name clearance is generally less stringent than under the CBCA, andconsequently an applicant is more likely to obtain a preferred corporate name under provinciallegislation. On the other hand, there is slightly more name protection under a federalincorporation than under a provincial incorporation.• The “unlimited liability” form of company has been in high demand in recent years because ofcertain United States tax advantages that are only available to companies with unlimited liability.If it is necessary that the company have unlimited liability, Nova Scotia is currently one of onlythree jurisdictions in Canada that permit incorporation of such companies, the others beingAlberta and British Columbia. Unlimited liability companies are discussed in more detail below.• All of the Atlantic Provinces have enacted provincial legislation to deal with several importantelectronic commerce issues, including the ability to manage corporate governance issues quicklyand efficiently using electronic methods such as email. In New Brunswick, the ElectronicTransactions Act governs electronic commerce. In Nova Scotia, Prince Edward Island andNewfoundland and Labrador the relevant legislation is known as the Electronic Commerce Act.Please see Chapter 10 – Technology Law for further information.Provincial IncorporationThe process for incorporating a provincial company varies somewhat from province to province. In NewBrunswick and Newfoundland and Labrador, companies are incorporated through the delivery of articlesof incorporation to the appropriate director and the issuance of a certificate of incorporation. In NovaScotia, incorporation takes place through the delivery to the Registrar of a memorandum of association,together with articles of association in most cases. A certificate of registration is then issued. In PrinceEdward Island, charters of incorporation are granted through the issuance of letters patent.While the mechanisms for creating companies vary from province to province, they tend to follow thesame general pattern. The process for incorporating a company under the NLCA is described below forillustrative purposes.A company is registered under the NLCA by filing articles of incorporation with the registrar in theprescribed form. The constating documents of a Newfoundland and Labrador company consist of theArticles of Incorporation and, in most cases, By-Laws. The Articles of Incorporation contain the name ofthe company, the restrictions, if any, on the objects and powers of the company, the address of theregistered office in the province, the classes and maximum number of shares which the corporation isauthorized to issue, a statement as to the nature of restrictions on shares and the number of directors.Page 11

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCompanies are managed on a day-to-day basis by the directors and officers of the company. Theshareholder’s role is generally limited to matters prescribed by the NLCA, including electing directors andfundamental corporate changes. Certain matters, such as changes to the share capital or a change inthe name of the company, are required to be dealt with by special resolution, which must be approved byat least a two-thirds vote of the shareholders or a unanimous written resolution.Every Newfoundland and Labrador company must register with the Registrar of Companies pursuant tothe NLCA. A name reservation is required prior to the registration of a company name. A company nameis required to have both a descriptive and distinctive element. For example, ABC Inc. will not satisfy theRegistrar of Companies, whereas ABC Software Inc. will likely be acceptable as it provides an indicationof the nature of the company’s business. Companies are also required to have a “registered office” inNewfoundland and Labrador where certain corporate (but not financial) records are required to bemaintained.Each year, the company must file an annual renewal of its registration together with an updated list of thedirectors of the company and their civic addresses. If a company is not in good standing under the NLCAit may not bring or maintain an action in any court in Newfoundland and Labrador. In addition, it is subjectto a fine for non-compliance and is susceptible to being struck from the Registry.Newfoundland and Labrador has an Innu Business Registry which maintains a listing of all InnuBusinesses. An Innu Business is a business organization in which the Innu have at least 51% ownershipor effective control. All types of business organizations that meet the established criteria are eligible to beregistered at the Innu Business Registry. Registration is a requirement in order to avail of certainbusiness opportunities and there is no fee for registration.Nova Scotia Unlimited CompaniesAn unlimited company is a distinct form of legal entity which may be formed under the NSCA. Like limitedcompanies, unlimited companies are registered under the NSCA by filing signed constating documentswith the Registrar of Joint Stock Companies. However, unlike a limited company, the shareholders of anunlimited company will, by definition, have unlimited joint and several liability for the obligations of thecompany upon its dissolution. Unlike the partners of a partnership (which is discussed below), theshareholders of an unlimited company have no direct liability to creditors of the company; theirresponsibilities only arise when the entity is liquidated with insufficient assets to satisfy its obligations.Unlimited companies are useful from a U.S. tax planning perspective. Under U.S. tax regulations, due tothe unlimited nature of unlimited companies, they are eligible to elect partnership treatment (or elect to bedisregarded), and as a result for U.S. tax purposes any income or losses of the unlimited company maythereby be taxed in the hands of the shareholders.Prior to 2005, Nova Scotia was the only Canadian jurisdiction that permitted the formation of unlimitedliability companies (“ULCs”). However, since then amendments to Alberta’s Business Corporations Actin 2005 and British Columbia’s Business Corporations Act in 2007 have permitted the formation of ULCsin Alberta and British Columbia as well.The legislative regimes governing ULCs in Nova Scotia, Alberta and British Columbia have somesubstantive differences. The NSCA is derived from English partnership law. Nova Scotia ULCs(“NSULCs”) are created under the NSCA and are governed by 150 years of case law in England andelsewhere. Alberta and British Columbia’s Business Corporations Acts are similar to other modernCanadian corporate statutes. Because the unlimited liability concept is novel in a statute of this kind, thereare compatibility issues to be resolved and little applicable judicial authority. On the other hand, theAlberta and British Columbia statutes are better able to address modern Canadian corporate conceptsthan the NSCA.One of the most significant differences between ULCs in the different jurisdictions is the nature ofshareholder liability. Under the Nova Scotia legislation, shareholders have no direct liability to creditors ofthe ULC; rather, liability arises on a winding up. For the shareholders to be liable, the creditors mustPage 12

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadaestablish a claim against the NSULC, and there must be the inability of the NSULC to pay. It is only atthat point that the creditors may pursue shareholders of the NSULC by winding up the NSULC andclaiming a deficiency.Shareholders of an Alberta ULC (“AULC”) are liable for an unlimited amount, on a joint and severalbasis, for any liability, act or default of the AULC, including actions commenced up to two years after thedissolution of the AULC. Liability extends to non-monetary obligations (i.e. criminal liability).Shareholders of a British Columbia ULC (“BCULC”) are jointly and severally liable to satisfy the debtsand liabilities of the BCULC as follows: (a) if the BCULC liquidates, from the commencement of theliquidation to its dissolution, to contribute to the assets of the BCULC for payment of the BCULC’s debtsand liabilities; and (b) whether or not the BCULC liquidates, after dissolution, for payment to the BCULC’screditors of the BCULC’s debts and liabilities.Under the NSCA, “past members” of a NSULC may be liable upon winding-up in certain cases for oneyear after ceasing to be a shareholder. Past members cannot be held liable for obligations contractedafter they ceased to be a member. Under Alberta’s legislation, former shareholders of an AULC are notliable for any liability, act or default of the AULC that arises after the shareholder ceases to be ashareholder and may only be liable for other claims if an action to enforce that claim is brought within twoyears from the date on which the shareholder ceases to be a shareholder. The shareholders of a BCULCwill not be liable for debts of the company unless it appears to the court that the current shareholders areunable to satisfy its debts and liabilities. Even if that is case, the BCULC shareholders will not be liablefor any debts or liabilities that arose after they ceased to be shareholder, and on a liquidation ordissolution they will not be held liable if they ceased to be a shareholder one year or more prior to thecommencement of that liquidation or dissolution.Residency requirements for directors are also different. NSULCs and BCULCs have no residencyrequirements for their directors. Alberta’s legislation requires that at least one quarter of the directors ofan AULC be residents of Canada. U.S. parent corporations may find the lack of a directors’ residencyrequirement for NSULCs and BCULCs to be an advantage, as it eliminates the need to find Canadianresidents to serve as directors. It also avoids the operational inconveniences which result from havingdirectors resident in different locations from that of the parent corporation.Extra-Provincial IncorporationsCorporations which are validly incorporated and existing in one Canadian jurisdiction (including a federalincorporation) may register to carry on business in other Canadian jurisdictions. The process forregistering as an extra-provincial corporation varies from province to province, but is fairly similar. Forillustrative purposes, the process for registering as an extra-provincial corporation in Nova Scotia isdescribed here. It is a relatively simple procedure, under which certain basic information, such as thename of the corporation and the names and addresses of the officers and directors, is required to be filedwith the Registry of Joint Stock Companies. Further, it is necessary for the extra-provincial corporation tohave a recognized agent in the Province of Nova Scotia for the purpose of service of documentationwithin Nova Scotia.Other Business StructuresSole ProprietorshipA sole proprietorship is the simplest form of business enterprise. It consists of an individual who ownsand operates a business. Unlike an incorporated company, in the case of a sole proprietorship theowner/operator personally owns all of the assets, and all obligations of the business are personalobligations of the sole proprietor. As such, the assets of the sole proprietor may be used to settle anyoutstanding debts of the business.A sole proprietor, as a self employed person, is not eligible for and does not pay employment insurance.Sole proprietors must report and pay tax on all proprietorship income in the calendar year in which thePage 13

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadaincome is earned, and the proprietorship income (or loss) will be added to other sources of income of theproprietor.One benefit of operating through a proprietorship is the low cost of organization. If start-up losses areexpected, then proprietorship may offer the additional advantage of allowing the proprietor to claim thoselosses as a deduction for income tax purposes against other sources of income. To succeed in makingsuch a deduction, the proprietor may be required to demonstrate that they have a reasonable expectationof earning a cumulative profit from the business enterprise.Some, but not all, of the Atlantic Provinces require sole proprietorships carrying on business under aname other than that of the proprietor to register that business name.PartnershipA partnership is the relationship that exists between two or more persons carrying on a business incommon with a view to a profit. A partnership can be a simple form of business structure, although theparties to the partnership can make it as simple or as complex as they desire. A partnership exists whentwo or more persons agree to carry on business together and share in the profits and losses of thatbusiness. As is the case with a sole proprietorship, a partnership is not a separate legal person distinctfrom the partners. The partners are personally responsible for all partnership obligations and jointly ownall partnership property.Each province has its own Partnership Act, but with few exceptions the provisions of those acts aresubject to any agreement made between the partners. All the Atlantic Provinces other thanNewfoundland and Labrador require partnerships to register the name under which they will be carryingon business and to maintain an annual registration. They also require that a computerized name searchbe conducted prior to registering the name of a partnership.Partners should have a written partnership agreement. If the partners do not enter into a writtenpartnership agreement, the common law implicitly provides one for them, and it is unlikely that thisunwritten agreement will be on the same terms and conditions as the partners would have agreed to if awritten partnership agreement had been entered into. A written partnership agreement outlines the rights,interests and responsibilities of each partner and sets out the proportionate right to earnings or losses,whether or not a partner can be expelled from the partnership, and how the partnership can beterminated.The primary disadvantage of a partnership is that each partner is held liable for all of the debts andliabilities of the partnership that are incurred while that person was a partner, including liability forwrongful acts or omissions of any partner in the partnership while that partner was carrying on business inthe ordinary course.Limited PartnershipA limited partnership is very similar to that of a general partnership described above, with the majordistinction being that in a limited partnership certain partners (the general partners) contributemanagement efforts to the partnership while other partners (the limited partners) contribute only capital,which contribution can be either cash or other property, but not services.Limited partnerships are governed by specific provincial legislation known variously as the LimitedPartnerships Act or the Limited Partnership Act; however, the provincial Partnership Act statutes and thecommon law also apply to limited partnerships to the extent that they are not inconsistent with the specificlimited partnerships legislation. As in the case with general partnerships, a computerized name search isrequired prior to registering the name of a limited partnership in Nova Scotia, New Brunswick and PrinceEdward Island.A limited partnership must have a minimum of one general partner and one limited partner, and eachlimited partner is liable for the obligations of the limited partnership only to the extent of its capitalPage 14

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadacontribution. This protection can, however, be lost if the limited partner takes part in the control of thebusiness, which can occur if the limited partner participates in the management of the business of thelimited partnership.A limited partnership is formed when either a certificate or declaration (depending on the province) is filedand recorded. This document contains the essential terms of the limited partnership, including the nameof the partnership, the nature of its business, the names of all partners and, with the exception of NewBrunswick, the amount of capital contributed by the limited partners. The parties to a limited partnershipshould also enter into a written limited partnership agreement, which governs the relationship betweenthe parties and the management of the partnership itself.Joint VentureUnlike the corporate structures described above, joint ventures are not governed by provincial or federallegislation. Instead, a joint venture is an association of persons engaged in a common undertaking forjoint profit by combining capital, skill, experience and other resources without forming a partnership. Thisform of organization is common in building or construction undertakings.It is important that the parties to a joint venture enter into a written agreement, and that the agreementexplicitly states that the parties do not intend to be associated in partnership, and that neither party is anagent of the other. If this step is not taken, the parties could be deemed to be acting in partnership,resulting in the application to their relationship of the Partnership Act and the common law principlesregarding partnerships.Co-operative AssociationsA co-operative is a body corporate, but is a separate legal entity created under specific provinciallegislation known variously as the Co-operative Associations Act or the Co-operatives Act. Co-operativesare associations whose primary purpose is to provide service to their members and which belong to thepeople who use the services, the control of which rests equally with all the members, and the gains fromwhich are distributed among the members in proportion to the use they make of the services. Eachmember of a co-operative has one vote and no member is personally liable for the debts, obligations oracts of the co-operative except for the amount, if any, unpaid on the shares for which he or she hassubscribed or the amount, if any, unpaid on the membership for which he or she has applied. There are anumber of active co-ops in the Atlantic Provinces.Page 15

CHAPTER 3REGULATION OF FOREIGN INVESTMENT

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 3 - REGULATION OF FOREIGNINVESTMENTBoth the establishment of a new Canadian business and the acquisition of an existing Canadian businessby non-Canadians are regulated by the federal government under the Investment Canada Act (the“ICA”). An individual who is neither a Canadian citizen nor a permanent resident of Canada will beconsidered a non-Canadian for the purposes of the ICA, while a corporation is considered to be non-Canadian if more than 50% of its shares are controlled or held by a person or corporation that is non-Canadian.The stated purpose of the ICA is to provide for the review of significant investments in Canada by non-Canadians in a manner that encourages investment, economic growth and employment opportunities inCanada and to provide for the review of investments in Canada by non-Canadians that could be injuriousto national security. In administering the ICA, the federal government has the dual function of promotinginvestment in Canada by non-Canadians, while at the same time reviewing any investment where theMinister has reasonable grounds to believe that foreign ownership or involvement in a Canadian businesscould be injurious to national security.While the majority of acquisitions and establishments of Canadian business by non-Canadians aresubject only to notification under the ICA, there are a number of investments which are subject to reviewby the relevant Minister. This review process is required when the acquisition by a non-Canadian entails:• the direct acquisition of control (by way of acquisition of shares or assets) over a Canadianbusiness with an enterprise value of $5-million or more;• the indirect acquisition of control over a Canadian business (through the acquisition of its parentcompany outside Canada) with an enterprise value of $50-million or more, or $5-million or more ifthe Canadian business represents over 50% of the enterprise value of the foreign parentcompany being acquired;• the acquisition of an existing business, or the establishment of a new or related business in aculturally sensitive sector such as publishing, film and music, regardless of its size; or• any investment which would be injurious to national security.As a result of Canada’s membership in the World Trade Organization (“WTO”), investors from the UnitedStates and other WTO member countries are subject to a more liberal set of rules under the ICA,including a higher threshold level for the acquisition of Canadian businesses. Under these rules, indirectacquisitions by WTO investors are not reviewable, and direct acquisitions of Canadian businesses byWTO investors are only reviewable if the gross assets of the Canadian businesses surpass a certainthreshold. Recent amendments to the ICA increased the threshold to $600-million, increasing to $1-billion over a six year period. These amendments will come into force on a day to be fixed by theGovernor in Council. These increased thresholds do not apply to cultural industries.Exemptions to the application of the ICA for certain transaction are also specifically carved out in theBank Act (Canada).The Investment Review ProcessAn application for approval may be filed at any time prior to the implementation of the investment or theacquisition. Generally speaking, the non-Canadian investor may not implement an investment oracquisition that is reviewable under the ICA until the investment or acquisition has been reviewed and theMinister responsible is satisfied that it is likely to be of net benefit to Canada. In conducting the review,the ICA requires that the following factors be taken into account:Page 16

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• the effect on the level and nature of economic activity in Canada, including the effect onemployment, on resource processing, on the utilization of parts, components and servicesproduced in Canada, and on exports from Canada;• the degree and significance of participation by Canadians in the business;• the effect on productivity, industrial efficiency, technological development, product innovation, andproduct variety in Canada;• the effect on competition within any industry in Canada;• compatibility with national industrial, economic, and cultural policies; and• the contribution to Canada's ability to compete in world markets.Following the filing of the application, the Investment Review Division of Industry Canada has 45 days toconduct a review. At the end of this review period, the investor is notified whether or not the Minister hasapproved the application. The Minister, as part of this response, may suggest changes to the acquisitionproposal which would allow the acquisition to become satisfactory. Alternatively, the investor may benotified that the Minister requires an extra 30 days to review the proposed investment. While the ICArequires that all reviews occur within 105 days of the date the application was completed, the reviewprocess is usually completed within six weeks.As part of the review process, the Minister generally consults with the province or provinces that would besignificantly affected by the investment, as well as the Competition Bureau and other governmentdepartments with relevant expertise. The ICA preserves the confidentiality of all information filed as partof the review process, and government officials administering the ICA are subject to criminal prosecutionif such information is illegally disclosed to third parties.There are several exemptions from the application of the ICA, including certain types of corporatereorganizations and securities transactions, certain financing transactions, and certain transactions withinthe insurance industry.It is worth noting that since the inception of the ICA, no investment in Canada by a non-resident has beenrejected under the review process, but in several instances applicants have accepted recommendedstructural changes.Other Restrictions on Foreign OwnershipIn addition to the restrictions set out above under the Investment Canada Act, there is also other industryspecific legislation which affects foreign ownership in Canada.Both the federal Bank Act and the federal Trust and Loan Companies Act have regulations which restrictthe ability of foreign banks and other non-residents to hold more than 25% of the shares issued by banks,trust companies and loan companies.Under the federal Broadcasting Act, broadcasting licences may not be issued to companies that areowned or controlled, directly or indirectly by non-Canadians or to individual non-Canadians. Also, thefederal Telecommunications Act requires that companies owning telecommunications transmissionfacilities, used to offer service to the public, must have at least 80% of their voting shares owned byCanadians and not less than 80% of the members of their board of directors must be Canadians. Inaddition, these Canadian carriers must be controlled in fact by Canadians at all times.The Insurance Companies Act limits foreign ownership in an existing Canadian owned life insurancecompany to 25% in the aggregate, and 10% for any individual non-resident. Provincial legislation alsoplaces restrictions on foreign investment in the insurance industry.Page 17

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaIn addition to the more common restrictions set out above, on a provincial level there may be restrictionson the amount or type of land which may be owned by non-residents, and there are also federalregulations with respect to a number of other industries including aviation, fisheries and securitiesdealers.Page 18

CHAPTER 4IMMIGRATION LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 4 – IMMIGRATION LAWImmigration into Canada, both temporary and permanent, is governed by the federal Immigration andRefugee Protection Act. In almost all cases, no one other than a Canadian citizen or permanent residentis permitted to work in Canada without a valid work permit. Companies looking to operate businesseswithin Canada using foreign workers must carefully consider immigration issues in advance.Temporary Work in CanadaFor a foreign worker to obtain temporary entrance into Canada, normally the following steps must befollowed. First, the prospective employer must provide written details of the job offer to Human ResourcesDevelopment Canada (“HRDC”) for evaluation. The employer must provide a description of the duties,wages and working conditions associated with the position, a statement of essential qualifications andcertain other details. The employer must also demonstrate that hiring a foreign national to fill the positionwill produce either a net or neutral economic benefit for Canada.HRDC will then consider if a suitably qualified Canadian citizen or permanent resident is likely to be ableto fill the position. If not, and the other conditions are met, HRDC will approve the job offer. It will thenissue a confirmation of offer of employment and make it available to the relevant visa office. The foreignnational must then apply for a work permit at the appropriate Canadian mission abroad - applications forwork permits may not be made in Canada as a visitor (with the exception of citizens or permanentresidents of the United States, Greenland or St. Pierre and Miquelon). It is important to note that a workpermit is not a visa to enter Canada and that in some cases a visa will also have to be obtained to gainentry into Canada.Some types of work, however, are exempt from the HRDC approval process, and some are even exemptfrom the work permit requirements. Under the North American Free Trade Agreement, American andMexican professionals, intra-company transferees, traders and investors do not require confirmation, andbusiness visitors may work in Canada without a work permit. Business visitors are those who enterCanada for international business activities, without entering the Canadian labour market. They mayrepresent a foreign business or government, and are remunerated outside Canada. Accordingly, theirprincipal place of business is considered to be outside Canada. Similar rules apply under the Canada-Chile Free Trade Agreement.Through its participation in the WTO’s General Agreement on Trade in Services, Canada has committedto facilitate market access for certain business persons who are foreign service providers in specifiedsectors. The commitments apply to service providers from more than 140 WTO member countries andcover three categories of business persons: business visitors, professionals and intra-companytransferees. Entry into Canada for qualifying business persons is made easier because they do not needto obtain HRDC confirmation or, in the case of a business visitor, a work permit.In response to industry concerns over the shortage of highly skilled workers in the information technologysector, HRDC has issued a national confirmation letter that streamlines the hiring of foreign workers forspecific software positions. This makes it unnecessary to obtain approval for each individual whose joboffer meets the specified criteria.Also, in an effort to attract temporary workers with skills needed in sectors of the economy facing labourshortages, Canada has provided that spouses and common-law partners of skilled temporary workers,including skilled tradespeople and high-tech workers, may apply for work permits without a job offer orHRDC confirmation.Permanent Entry into CanadaThere are several different classes of immigrants into Canada, which are reviewed separately below:Page 19

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaBusiness ClassBusiness immigrants are people who can invest or start businesses in Canada and are expected tocontribute to the growth of the Canadian economy. Business immigrants are selected based on theirability to become economically established in Canada.There are three categories of business immigrants:InvestorsTo be eligible for immigration as an investor, an applicant must make a prescribed investment of$400,000 payable to the Receiver General of Canada. The investment is subsequently allocatedto participating provinces and territories in Canada and is used towards job creation andeconomic development programs. The full amount of the investment (without interest) is repaidto the investor after approximately five years. The investor must also have a net worth of at least$800,000 and satisfy certain other requirements relating to business management experience.EntrepreneursTo be eligible for immigration as an entrepreneur, an applicant must have managed andcontrolled a percentage of the equity of a qualifying business for at least two years during the fiveyear period before the date of application, have a net worth of at least $300,000, and intend andbe able to manage and control a percentage of the equity of a qualifying Canadian businessequal to or greater than 33.33%, and create at least one full-time job equivalent for Canadiancitizens or permanent residents, other than the entrepreneur and his or her family members, for aperiod of at least one year within three years of arriving in Canada.Self-employed PersonsTo be eligible for immigration as a self-employed person, an applicant must have at least twoyears of one of the following types of experience in the period beginning five years before thedate of application:• self-employment or participation at a world-class level in cultural activities;• self-employment or participation at a world-class level in athletics; or• farm management experience.Self-employed persons must have the intention and ability to be self-employed in Canada and tomake significant contributions to cultural activities or athletics, or to purchase and manage a farm.Business immigrants who meet the definition of the class under which they are applying (investor,entrepreneur or self-employed person) are then assessed against five selection criteria and must obtain aminimum of 35 points, which are allocated according to the following criteria: education, experience, age,proficiency in English or French and adaptability. The pass mark can change at the direction of theMinister of Citizenship and Immigration.Skilled Worker ClassSkilled workers are eligible to become permanent residents because they are considered able to becomeeconomically established in Canada. To be accepted as a skilled worker, applicants must meetestablished minimum work experience requirements, prove that they have the funds required forsettlement, and earn enough points under six selection criteria to meet the pass mark.Family ClassCanadian citizens and permanent residents living in Canada, 18 years of age or older, may sponsor closerelatives or family members who want to become permanent residents of Canada. Sponsors mustpromise to support the relative or family member and their accompanying family members for a period ofthree to 10 years to help them settle in Canada.Page 20

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaProvincial NominationMost provinces in Canada have an agreement with the Government of Canada that allows them to play amore direct role in selecting immigrants who wish to settle in that province. People wishing to immigrateto one of Canada’s provinces as a Provincial Nominee must first apply to the province where they wish tosettle. The province will consider their application based on its immigration needs and the applicant’sgenuine intention to settle there.Before applying to immigrate to Canada, Provincial Nominees must complete the provincial nominationprocess. After being nominated by a province, they must then make a separate application to Citizenshipand Immigration Canada (“CIC”) for permanent residence. A CIC officer assesses their application basedon Canadian immigration regulations. Provincial Nominees are not assessed on the six selection factorsof the Skilled Workers Program.Other ConsiderationsForeign residents contemplating a move to Canada, either temporary or permanent, should consult withan expert to determine if any options may be available to reduce the tax consequences of such a move.For example, some immigrants may be in a position to benefit from the creation of a non-resident trustprior to entry into Canada. Non-residents should also ascertain if they and their dependents will beeligible for provincially-provided health coverage. If not, a private health plan should be purchased inadvance of arrival in Canada.Page 21

CHAPTER 5TRADE LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaInternational TradeCHAPTER 5 – TRADE LAWInternational trade is a vital component of Canada’s economy – its exports account for over 40% of totalgross domestic product and an estimated one in four jobs in Canada is linked to its success in globalmarkets. Canada is a signatory to the North American Free Trade Agreement (“NAFTA”) with the UnitedStates and Mexico, under which the world’s largest free trade area was formed. Canada is also aparticipant in bilateral free trade agreements with Chile, Costa Rica and Israel. These agreements haveeliminated various barriers to the trade of goods and services between the participating countries.NAFTAUnder NAFTA, which came into effect on January 1, 1994, tariffs and trade barriers on goods which meet“rules of origin” requirements have gradually disappeared. Virtually all tariffs on goods traded betweenCanada and the United States were eliminated by January 1, 1998 and tariffs on most Mexican goodswere eliminated by January 1, 2003.The rules of origin basically stipulate that for goods to be traded free of tariffs, the materials and othercomponents used in their manufacture must originate in one of the member countries, and themanufacturing process itself must take place in a member country. The rules themselves are quitecomplex and provide for variations in the amount of regional content required, depending on the product.For example, automotive parts are required to have 50% North American content to qualify forpreferential treatment under NAFTA, but this content requirement will rise over time to between 60% and62.5%.An important point to note is that ownership of the manufacturer of goods does not affect the applicationof NAFTA’s rules, meaning that foreign-owned Canadian businesses are fully eligible to take advantageof the elimination of tariffs under NAFTA, provided that their goods satisfy the applicable rules of originrequirements.NAFTA also contains rules governing the cross-border trade in services provided by enterprises locatedin member countries. It stipulates that each member must treat service providers from other membercountries no less favourably than its own service providers. Service providers are not required toestablish a local office or otherwise be resident in a member country as a condition for the cross-borderprovision of a service. However, certain restrictions on cross-border services can be maintained wheresuch restrictions have been listed in an annex to NAFTA.Other Free Trade AgreementsOn January 26, 2008, Canada entered into a free trade agreement with the States of the European FreeTrade Association (“EFTA”). The European Free Trade Association consists of the Republic of Iceland,the Principality of Liechtenstein, the Kingdom of Norway and the Swiss Confederation.Also on January 26, 2008, Canada entered into bilateral agreements respecting the trade of agriculturalproducts with the Republic of Iceland, the Kingdom of Norway and the Swiss Confederation(“Agricultural Agreements”).At the time of writing, the EFTA and Agricultural Agreements had not yet been legislatively implemented.They will have the force of law upon the coming into force of the Canada – EFTA Free Trade AgreementImplementation Act.The EFTA and the Agricultural Agreements, once implemented, will establish a free trade area, inaccordance with their terms, which is comparable to NAFTA. Once passed, the Canada – EFTA FreeTrade Agreement Implementation Act will also amend the Canadian International Trade Tribunal Act, thePage 22

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCustoms Act and the Customs Tariff in order to properly account for the provisions of the EFTA and theAgricultural Agreements.Importing GoodsThe Customs Act establishes a self-assessment system under which all goods imported into Canadamust be reported to the nearest customs office. The applicable duties are calculated according to theprovisions of the Customs Tariff, which sets out a list of tariff provisions and establishes the rates ofcustoms duty applicable to the various tariff items. It is the importer’s responsibility to determine and paythe duties on the goods being imported. The importer is also required to report any errors made in thecalculation of such duties discovered within three years of the importation of the goods.In 2002, an Administrative Monetary Penalty System (“AMPS”) was put into place which authorizes theCanada Border Services Agency to assess graduated monetary penalties for infractions of Customslegislation. The penalties range from $100 to a maximum of $25,000 per infraction. The amount is basedon the type, frequency and severity of infraction. Importers with more than one infraction will receivepenalties of increasing amounts. The AMPS penalties largely replace the use of seizure and ascertainedforfeitures as enforcement tools. However, when an AMPS penalty is issued, seizure action may also beinitiated in specific circumstances. These may include instances where goods are prohibited orcontrolled. As well, the application of an AMPS penalty, or the use of seizure and ascertained forfeiture,does not preclude the option to prosecute. Criminal prosecution is available for more serious infractions,with maximum fines of up to $500,000 and maximum prison terms of five years.The tariff treatment accorded to goods under the Customs Tariff varies according to the nature of theitems and their countries of origin. Goods from some countries are given preferential treatment, includingthose countries participating in free trade agreements with Canada and certain developing countries.Special tariffs are also offered to certain goods originating in Commonwealth Caribbean countries,Australia and New Zealand.To ascertain the value of the goods being imported, and thereby the duties payable, a transaction valueapproach is used, in accordance with Canada’s obligations under the World Trade Organization’sGeneral Agreement on Tariffs and Trade 1994. The customs value of imported goods is the priceactually paid or payable for the goods when sold for export to Canada. That price is adjusted for a varietyof factors including transportation costs, royalty fees, handling fees and insurance costs. Other methodsof valuation are available if the transaction value cannot be used. There are also special rules whichapply when the importer and exporter are related parties.In addition to duties which may be payable under the Customs Act, the Excise Tax Act requires importersto pay Harmonized Sales Tax (“HST”) on the value of imported goods, although some goods areexempted from HST. The tax is payable in accordance with the Customs Act and becomes due at thetime the entry document for the goods is processed. Input tax credits on imported goods are available toHST registrants to the extent that the goods are for use in the registrant’s commercial activities.Import and Export ControlsThe Export and Import Permits Act requires that import permits be obtained for certain goods, such asdairy and poultry products, which are subject to import quotas. It also identifies certain goods which maynot be exported and certain countries to which exports are prohibited, except under the authority of exportpermits issued under the Act. It should be noted, however, that unlike the United States, there is noprohibition of trade with Cuba. Indeed, Canadian law prohibits Canadian subsidiaries of Americancorporations from complying with U.S. laws restricting trade with Cuba. American parent companies thattry to prevent Canadian subsidiaries from exporting Canadian goods and services to Cuba could findthemselves in breach of Canada’s Foreign Extraterritorial Measures Act, thereby exposing the Canadiansubsidiaries to penalties under that Act. Canada does, however, apply American export controls onAmerican goods bound for Cuba, in order to prevent Canada from being used as “goods launderer” byAmerican exporters seeking to avoid export controls applicable in the United States.Page 23

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaTrade in certain items may also be restricted pursuant to international agreements which Canada is aparty to. For example, the Nuclear Non-Proliferation Treaty restricts the import and export of uranium andnuclear-related materials.Trade RemediesCanadian producers are protected from unfair trade under the Special Import Measures Act (“SIMA”),which allows them to file complaints and to request relief when dumped or subsidized imports cause, orthreaten to cause, material injury to a Canadian industry or material delay in the establishment of aCanadian industry.Dumping occurs when goods are sold to Canadian importers at prices lower than their selling price in theexporter’s domestic market or at prices lower than their full cost. The remedy that is available in suchcircumstances is the imposition of anti-dumping duties in the amount or margin of dumping.Subsidized goods are goods which have been produced, transported or sold with the benefit of a subsidyfrom a foreign government. In such circumstances, the subsidy can be offset by the levying ofcountervailing duties in the amount of the value of the subsidy.Initially, the President of the Canada Border Services Agency determines whether dumping or subsidizingis occurring. If either is taking place, provisional anti-dumping or countervailing duties may be imposedpending the outcome of an inquiry by the Canadian International Trade Tribunal (“CITT”). The CITT’s roleis to determine if dumping or subsidizing has caused or threatens to cause material injury.Canada’s right to apply SIMA’s provisions against imports from the United States and Mexico is notrestricted by NAFTA, although decisions made under SIMA affecting such goods may be reviewed by apanel under NAFTA.In limited circumstances, duties on fairly traded goods may be eligible under the Canadian InternationalTrade Tribunal Act and the Customs Tariff if the imports in question cause or threaten to cause seriousinjury to a Canadian industry. Safeguard actions, such as the imposition of surtaxes or temporary quotas,may be implemented by the federal Minister of Finance on the recommendation of the CITT.International Investment Dispute ResolutionThe Settlement of International Investment Disputes Act (Canada) (the “SIID Act”) was assented toMarch 13th, 2008, however, it has not yet been proclaimed into force. The SIID Act applies to awardsrendered, arbitration agreements entered into and conciliation proceedings commenced under theConvention on the Settlement of Investment Disputes between States and Nationals of Other States (the“Convention”).As of May 9, 2007 the Convention had been signed by 156 countries (“Contracting States”), of which144 have proceeded to ratification. Canada became a signatory to the Convention on December 15,2006.The SIID Act establishes the International Centre for Settlement of Investment Disputes (the “Centre”).The Centre has the capacity of a natural person, and is provided certain immunities and privileges.Further, immunities are also extended to the chair and members of the Administrative Council and toother persons such as parties to proceedings, counsel and witnesses.The Centre maintains a Panel of Conciliators and a Panel of Arbitrators. Each Contracting Statedesignates four individuals to serve on each of the Panels.The jurisdiction of the Centre extends to all legal disputes arising directly out of an investment between aContracting State and a national of another Contracting State. Parties to a dispute must consent inwriting to submit the dispute to the Centre. Once a dispute has been submitted and consent is given byall parties involved, no party may then withdraw its consent unilaterally.Page 24

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaConsent of the parties to arbitration under the Convention is deemed to be consent to such arbitration tothe exclusion of any other remedy. Awards are binding on the parties and are not subject to any appealor to any other remedy.The SIID Act provides that a provincial superior court has the jurisdiction to recognize and enforce anaward made pursuant to the SIID Act by a tribunal established under the Convention. On application,such a court must recognize and enforce an award as if it were the final judgment of that court.An arbitration tribunal will decide a dispute in accordance with the rules of law agreed to by the parties,except that in the absence of agreement, the tribunal shall apply the law of the Contracting State party tothe dispute (including its rules on the conflict of laws) and such rules of international law as may beapplicable.A growth in the number and significance of international investments results in an increase in the quantityand complexity of investment disputes. The Centre offers Contracting States an alternative to litigationwith the provision of a reputable and accessible international dispute mechanism.Exchange ControlsCanada does not have any exchange controls, so there are no restrictions on the repatriation of profits tothe foreign owners of businesses conducted in Canada. However, the Proceeds of Crime (MoneyLaundering) and Terrorist Financing Act does establish reporting requirements for the export of currencyor monetary instruments.Provincial LawsAs a result of the jurisdictional division of powers within Canada, international agreements entered into bythe federal government which affect matters under provincial jurisdiction cannot come into effect until theyhave received provincial approval. One of the areas of primary provincial jurisdiction is the regulation ofproperty and civil rights, which includes the law of contracts. Accordingly, international agreements suchas the United Nations Convention on Contracts for the International Sale of Goods (“CCISG”) only comeinto force after provincial implementation.Legislation to extend the CCISG to the Atlantic Provinces has been enacted by all four provinces. TheCCISG applies to contracts of sale of goods between parties whose places of business are in differentcountries. The CCISG contains rules governing contract formation, breaches of contract and theobligations of sellers and buyers.Another international agreement which can impact on trade between Canada and other countries is theUNCITRAL Model Law on International Commercial Arbitration (“MLICA”). MLICA governs the conductof arbitrations in circumstances where arbitration agreements exist between parties that have their placesof business in different countries. Legislation to extend the MLICA to the Atlantic Provinces, as well as toimplement the United Nations’ Convention on the Recognition and Enforcement of Foreign ArbitralAwards, has been enacted by all four provinces.Domestic TradeCompetition LawThe federal Competition Act governs most business conduct in Canada and contains both criminal andcivil provisions aimed at promoting competition and efficiency in the marketplace. The CompetitionBureau, an independent federal agency, administers the Competition Act.Recent amendments to the Competition Act includes the introduction of a criminal “per se” conspiracyoffence. The intention of the provisions is to eliminate “hardcore” cartels. The former provisions againstconspiracy required the conspiracy to “unduly” effect competition. The new provision no longer requiresthe prosecutor to establish that a criminal conspiracy has occurred in reference to the determination of aPage 25

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadarelevant market, the market structure and the conduct of the parties. This will make it easier for theprosecutor to prove the offence.The new provision is much broader than its predecessor and may inadvertently render illegal otherwisebenign agreements, allegiances or joint ventures among competitors (which, for example, fix prices,allocate customers or limit production), regardless of whether the companies have market power orwhether competition has in fact been lessened. Agreements between franchisees and franchisors, forexample, could be caught by the new provision. However, a new defence to criminal conspiracy hasbeen included in the amendments; if the offending agreement is ancillary to a broader agreement amongthe same parties that is not anti-competitive, there will not be a criminal conspiracy. The stiffer penaltiesintroduced for violation of the criminal conspiracy provision are also noteworthy and include imprisonmentof up to 14 years and monetary penalties of up to $25-million.Further, a civil provision for conspiracy among competitors that falls short of the requirements for thecriminal offence, but which results in a substantial lessening of competition, has been incorporated in theamendments.The aim of these provisions is to create two tracks for conspiracies – a criminal review for the mostegregious acts, and a civil review for anti-competitive, but not criminal, activity.These amendments will come into force one year following Royal Assent, which was granted on March12, 2009. During this one year period, Canadian businesses may submit agreements to the Bureau forreview to ensure their agreements do not violate the new provisions of the Competition Act.The Competition Act also outlines a number of specific practices which attract criminal sanction, including(but not limited to) bid-rigging, knowingly or recklessly making false or misleading representations to thepublic, deceptive telemarketing, deceptive prize winning notices, double ticketing (the charging of thehigher of two prices indicated on a product), and pyramid selling schemes.Predatory pricing, price discrimination and discrimination through promotional allowances have beendecriminalized by the amendments to the Competition Act. However, the same behaviour has beenincluded as “anti-competitive acts” under the abuse of dominant position provisions in the CompetitionAct, discussed below, and may be pursued by the Competition Bureau on a civil review basis. Althoughno criminal sanctions will be rendered, severe administrative monetary penalties will apply.Further, the criminal offence of price maintenance has been replaced with a civil enforcement provisionwhich requires that “the conduct has had, is having or is likely to have an adverse effect on competition ina market” for the offence to have occurred.The ability of a party to seek civil damages against an offender for price discrimination, predatory pricingand price maintenance has been eliminated.Among the practices which are subject to civil penalties (including fines of up to $750,000 for individualsand $10-million for corporations for a first offence) are false and misleading statements to the public,misrepresentations regarding the ordinary price of a product, misrepresentations as to product test resultsor public testimonials, bait and switch selling (where a product is advertised at a bargain price but is notsupplied in reasonable quantities), sales above advertised prices, and inadequate disclosure of the valueof prizes in promotional contests.Most complaints regarding breaches of the Competition Act arise from business competitors andconsumers. Complaints are filed with the Competition Bureau, which then examines them to determine ifthey raise a concern under the Competition Act. If the Bureau determines that there is evidence of apossible contravention, a formal inquiry may be opened. Based on the Bureau’s determination, suspectedcriminal offences are referred to the Attorney General of Canada for possible prosecution before thecriminal courts. Civil law matters are referred to the Competition Tribunal, a specialized administrativetribunal which is independent of government and is chaired by a judge. The Tribunal has the power toPage 26

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadaissue injunctions and remedial orders preventing practices that are likely to substantially reducecompetition.The Competition Act also establishes a number of trade practices and activities which can be reviewed bythe Competition Tribunal. These activities include the refusal by a supplier to sell its product to anotherparty, consignment selling, exclusive dealing, market restrictions, tied selling, abuse of dominant positionand delivered pricing. Administrative monetary penalties of up to $10-million for the first offence and upto $15-million for subsequent offences have been recently introduced for abuse of dominant positionoffences.The other major reviewable activity under the Competition Act is mergers, which are defined very broadlyas involving the acquisition of control over or significant interest in the whole or part of a business of acompetitor, supplier, customer or other person, whether directly or indirectly and whether by share orasset purchase or by amalgamation or otherwise. If the Tribunal determines that a merger or proposedmerger prevents or lessens competition substantially, or is likely to do so, it may order that the merger bedissolved or not proceeded with, or allow it to proceed under certain conditions.Large proposed mergers are subject to notification requirements which must be satisfied before themergers can be completed. Mergers requiring notification to the Commissioner of Competition are thosewhere the parties have assets in Canada that exceed $400-million in aggregate value, or annual grossrevenues from sales in, from or into Canada that exceed $400-million. Additionally, the size of thetransaction must exceed $70-million, either in terms of the value of the assets being acquired or theannual gross revenues that would be generated by the transaction. As well, in the case of sharepurchase transactions, the proposed transaction must result in the acquiror holding at least 20% of theshares of a public corporation or 35% of the shares of a private corporation. There are additional rulesthat apply for amalgamations and joint ventures.The notification procedure involves completing either a short-form or long-form filing and paying a filingfee of $50,000. It is also possible to apply for an Advanced Ruling Certificate as an alternative to filingthe short-form or long-form filings.In considering if a merger or proposed merger will substantially lessen competition, the CompetitionTribunal is required to consider a number of factors including the extent to which foreign products orforeign competitors provide or are likely to provide effective competition to the businesses of the parties tothe merger or proposed merger; whether the business, or a part of the business, of a party to the mergeror proposed merger has failed or is likely to fail; the extent to which acceptable substitutes for productssupplied by the parties to the merger or proposed merger are or are likely to be available; any barriers toentry into a market, including tariff and non-tariff barriers to international trade and any effect of themerger or proposed merger on such barriers; the extent to which effective competition remains or wouldremain in a market that is or would be affected by the merger or proposed merger; any likelihood that themerger or proposed merger will or would result in the removal of a vigorous and effective competitor; thenature and extent of change and innovation in a relevant market; and any other factor that is relevant tocompetition in a market that is or would be affected by the merger or proposed merger.Pursuant to recent amendments to the Competition Act, the initial review period is now 30 days for allmatters. If the Competition Bureau requires further information in order to make its determination, thereview period will be extended for an additional 30 days commencing only after the parties fully complywith the Bureau’s request for additional information.Further, the time period during which post-merger challenges by the Competition Bureau can be madehas been recently reduced from three years to one year.Product Standards and CodesProducts and services in Canada are subject to numerous technical standards which set minimumrequirements for safety or performance. Many of these standards have been developed by industryassociations on a voluntary basis. Federal and provincial governments have also established manyPage 27

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadamandatory standards, often by incorporating into law standards developed by industry organizations.One of the key federal statutes to be aware of is the Hazardous Products Act, which applies to theadvertising, sale and importation into Canada of hazardous products and substances, and which sets outnational safety standards for numerous consumer products, including toys, furniture, household andgarden products.The Standards Council of Canada is a federal Crown corporation with the mandate to promote efficientand effective standardization. It coordinates and oversees the efforts of the National Standards System,which includes organizations and individuals involved in voluntary standards development, promotion andimplementation in Canada. Some of the more prominent standards developing organizations in Canadainclude the Canadian Standards Association (which deals with electrical products, fire and safetyequipment, plumbing fixtures, toys and other consumer goods), the Canadian General Standards Board(textiles) and the Underwriters Laboratories of Canada (fire hazards and detection).Given the large number of standards in force, developers and importers of products should seek expertadvice to ensure their products comply with applicable standards. Companies should also determine iftheir products are eligible to receive certification marks from accredited certification organizations.Packaging and Labelling RequirementsThe federal Consumer Packaging and Labelling Act applies to most products which are the subject oftrade or commerce in Canada, including both food and non-food products. The Act provides that noprepackaged goods can be sold, imported to Canada or advertised without a label prominently displayingthe net quantity of the product. Labels are required to identify the product’s identity in both English andFrench, and quantities must normally be described using the metric system of measurement. The Actalso regulates standard container shapes and sizes.In addition to the Consumer Packaging and Labelling Act, there are a number of federal statutes thatmandate additional packaging and labelling requirements, including the Food and Drugs Act (which dealswith food products, drugs, cosmetics and medical devices), the Canada Agricultural Products Act (whichregulates specific food and beverage products), the Textile Labelling Act, the Hazardous Products Act,the Pest Control Products Act, the Precious Metals Marking Act, the Trade-marks Act, the Customs Tariff(which mandates that the country of origin be indicated on certain imports) and the Weights andMeasures Act.AdvertisingAs seen above, the Competition Act has many provisions which regulate advertising, including a generalprohibition against making false or misleading representations to the public and restrictions ontelemarketing and promotional contest activities. There are also many provincial statutes and regulationswhich impact on advertising, and these include locational restrictions (e.g. under highways legislation),product related restrictions (e.g. for liquor and tobacco), and professional restrictions (e.g. for lawyers anddentists).Warranties and Consumer ProtectionAll of the Atlantic Provinces have a Sale of Goods Act (“SGA)”, and there exists a high degree ofuniformity between the jurisdictions.The SGA sets out a complete and uniform set of rules which govern all situations where goods arebought and sold. The purpose of the legislation is to fill the gaps in the terms of a contract, where theparties may have forgotten to address an issue. It states what promises are to be implied on the part ofthe buyer and the seller in respect of matters on which the contract is silent, and the consequences ofperformance or non-performance of such promises where the contract does not state what thoseconsequences are to be. Its provisions do not supplant those of the contract, they merely supplementthem. The terms of the contract always prevail over the terms of the SGA, and the legislation specificallyallows parties to contract out of some or all of its provisions, should they wish to do so. As well, the SGAPage 28

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadaonly has application to sales of goods, and does not cover an agreement to supply services, even ifgoods are incidentally involved.The SGA contains implied terms as to the quality of goods, including implied warranties (e.g., of quietpossession and of free and clear title) and implied conditions (e.g., that the goods will be of merchantablequality, will correspond to the description and will be reasonably fit for the particular purpose for whichthey are acquired, provided that that purpose is made known to the seller).The SGA also contains provisions setting out rules for determining when ownership of goods passes tothe buyer and requirements for the delivery and acceptance of goods, including place of delivery, time fordelivery, expenses of delivery, the right of examination by the buyer and time for payment. As well, itestablishes the remedies available to any wronged party under a sale of goods contract.In addition to the SGA, the Atlantic Provinces have passed a variety of other acts geared towardsconsumer protection. For example, Newfoundland and Labrador has legislation that governs unfair andunconscionable consumer transactions. The Trade Practices Act provides a right of action against asupplier where a consumer has entered into a consumer transaction with a supplier and has suffereddamages as a result of an unfair trade practice or unconscionable act or practice. Prince Edward Islandhas similar legislation, titled the Business Practices Act.In New Brunswick, the Consumer Product Warranty and Liability Act (“CPWLA”) provides that anystatement made by a supplier, whether written, oral or in advertising, becomes an express warranty if thebuyer reasonably relies upon it in purchasing a product. The CPWLA also establishes a number ofimplied warranties covering title, quality and fitness, and contains a product liability section which imposesstrict liability on a supplier for losses suffered by consumers as a result of defective consumer products,irrespective of any contract or negligence.The other Atlantic Provinces do not have legislation dealing with product liability. However, productliability claims may be maintained by parties under the common law principles of negligence and underthe law of contract for breaches of contractual warranties or conditions. The normal measure of damagesin negligence is for reasonably foreseeable losses. Personal injury and property damage awards areintended to be compensatory. On rare occasions, punitive damages may also be awarded. A recentdevelopment which may have an impact on product liability award levels is the emergence of class actionlawsuits. In 2001, Newfoundland and Labrador passed its Class Actions Act, in 2006 New Brunswickpassed its Class Proceedings Act and in 2007 Nova Scotia passed its Class Proceedings Act. To date,Prince Edward Island has not introduced similar legislation. Like other Canadian provinces, class actionlawsuits in Newfoundland and Labrador have become more frequent over time. A similar experience isexpected in New Brunswick and Nova Scotia. By making access to such lawsuits more affordable forindividual claimants, it seems likely that overall awards for product liability claims will increase in thecoming years.Other consumer protection legislation can be found in provincial acts which specify borrowing costdisclosure requirements that must be complied with by businesses that extend credit. As well, all theAtlantic Provinces have enacted comparable Unconscionable Transactions Relief Acts, which providesrelief to debtors in circumstances where a court finds the cost of the loan to be “excessive” and thetransaction to be harsh and unconscionable.Still other forms of consumer protection are found in provincial statutes which regulate specific industries.Examples of such statutes, which often include licensing or permit requirements, include New Brunswick’sReal Estate Agents Act, Nova Scotia’s Collection Agencies Act, Newfoundland and Labrador’sAutomobile Dealers Act, Prince Edward Island’s Auctioneers Licence Act and Payday Loans Act, and theDirect Sellers Act, a version of which has been passed in all four Atlantic Provinces. Also of note is NovaScotia’s Consumer Creditors’ Conduct Act, which protects consumers from certain kinds of inappropriatebehaviour on the part of creditors.The consumer protection legislation in Newfoundland and Labrador will largely be repealed and replacedwith the coming into force of the Consumer Protection and Business Practices Act (“CPBPA”) onPage 29

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaDecember 1, 2009. The CPBPA will repeal the Consumer Protection Act, the Consumer ReportingAgencies Act, the Cost of Consumer Credit Disclosure Act, the Direct Sellers Act, the Trade PracticesAct, the Unconscionable Transactions Relief Act and the Unsolicited Goods and Services Act and replacethem with a comprehensive and consolidated consumer protection regime.FranchisingFederal lawThere is no federal act specifically dedicated to the regulation of franchises. However, there are manyacts which impact on the operation of franchises, including the Competition Act (with regard to trade andcompetition matters), the Trade-marks Act (with respect to the registration and protection of trade-marks),the Income Tax Act (with respect to taxation rules) and the Investment Canada Act (with respect toinvestment rules governing foreign based franchisors).Prince Edward IslandProvincial lawPrince Edward Island recently passed a new Franchises Act (the “PEI Act”). Alberta and Ontario are theonly other Canadian provinces where franchise legislation has been brought into force. The PEI Actclosely follows the Ontario Franchise legislation, and includes changes that were suggested in theUniform Law Conference of Canada’s Uniform Franchise Act.Duty of Fair DealingThe PEI Act imposes a duty of fair dealing on each party to a franchise agreement and includes a duty toact in good faith and in accordance with reasonable commercial standards. The PEI Act provides anaggrieved party a right of action for damages against a party that breaches this duty of fair dealing. ThePEI Act permits franchisees to join together to form a franchisee association and precludes a franchisorfrom prohibiting or penalizing a franchisee for engaging in this type of activity.Disclosure RequirementsThe PEI Act contains many provisions dealing with the requirement for open disclosure by franchisors. Afranchisor must disclose all material facts about the business operations, capital and control of thefranchisor, about the franchise and about the franchise system. Financial statements, prepared inaccordance with generally accepted accounting principles, must be given to a prospective franchiseeunless the franchisor has a net worth of less than $2-million or the franchisor has had at least 25franchisees conducting business at all times in Canada during a five year period immediately precedingthe disclosure document. The franchisor must provide detailed information about the franchise, includinga list of all the franchisee’s costs associated with the establishment of the franchise, the amounts ofdeposits and fees, etc., the nature of any recurring or isolated fees or payments that would have to bemade by a franchisee, the description of the franchisor’s policies and practices with respect to guaranteesand security that may have to be given by a franchisee, an estimate of the operating costs of thefranchise, earnings projections for a franchise, all terms and conditions on financing, training, advertisingand restrictions on purchase and sale of the business, rebates, commissions and payments of otherbenefits, territory, proximity of other franchisees, trade-mark and other proprietary rights to be given to afranchisee, and rights upon the termination of the agreement and the renewal of the agreement. Afranchisor must also disclose a list of all existing and former franchisees in Prince Edward Island, NewBrunswick and Nova Scotia, including their names, addresses and telephone numbers. The intention isto provide a prospective franchisee with as much disclosure as possible so that a franchisee can make aninformed decision about the franchisor and the franchise.Pursuant to the Franchises Act Regulations (the “Franchise Regulations”), a franchisor may use afranchise disclosure document prepared under the franchise law of another jurisdiction provided that thePage 30

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadafranchisor includes such supplemental information as is necessary to comply with the disclosurerequirements under the PEI Act and the Franchise Regulations.After a disclosure document is provided and a franchise agreement is signed, a franchisor generally doesnot have ongoing disclosure obligations except in the event of a “material change”. A “material change” isdefined to mean a change in the business, operations, capital or control of the franchisor or franchisor’sassociate or in the franchise or the franchise system, that would reasonably be expected to have asignificant effect on the value or price of the franchise to be granted or on the decision to acquire thefranchise and includes a decision to implement such a change made by the board of directors of thefranchisor or franchisor’s associate or by senior management of the franchisor or franchisor’s associatewho believe that confirmation of the decision by the board of directors is probable.When a material change occurs, a franchisor must provide the prospective franchisee with a writtenstatement of the material change and the franchisee must receive the statement of the change as soonas practicable after the change has occurred and before the earlier of: (i) the signing by the prospectivefranchisee of any agreement relating to the franchise agreement or any other agreement relating to thefranchise; or (ii) the payment of any consideration by or on behalf of the prospective franchisee relating tothe franchise.Rescission RightsThe PEI Act permits a franchisee to rescind a signed franchise agreement by giving a notice ofcancellation to the franchisor or its associate, as the case may be, within 60 days of receiving thedisclosure document if the content of the disclosure does not comply with the requirements of the PEIAct, and within two years if the franchisor never provides such disclosure. If a franchise is rescinded byvirtue of non-disclosure, then a franchisor must refund all monies paid by the franchisee and buy back allassets that the franchisee acquired to operate the franchise.Rights and DisputesThe PEI Act prohibits a franchisor from obtaining a waiver or release by a franchisee or a prospectivefranchisee of any rights conferred by or under the PEI Act or of an obligation or requirement imposed on afranchisor or a franchisor’s associate by or under the PEI Act. The PEI Act renders any such waiver orpurported waiver as void. The PEI Act provides that any provision purporting to restrict the law of PrinceEdward Island or to restrict the jurisdiction or venue dealing with any dispute to a location outside ofPrince Edward Island is void, but only with respect to “a claim otherwise enforceable under this Act inPrince Edward Island”. It is, therefore, possible to have a franchise agreement which is governed by thelaw of another jurisdiction; with only those portions of the franchise agreement that are specifically dealtwith under the PEI Act being governed by Prince Edward Island law. The PEI Act does not restrict afranchisor from including provisions requiring that disputes be heard in a location other than PrinceEdward Island. If a franchisee sought to have a dispute dealt with in Prince Edward Island concerningmatters that were not dealing with “claims otherwise enforceable under the [PEI Act]”, then the franchiseewould still be required to prove to the satisfaction of the court that there is a good reason why thefranchisee should not be bound by the franchise agreement selecting a jurisdiction other than PrinceEdward Island. In determining where such a dispute should be adjudicated, the courts will look toquestions such as the convenience of the parties, fairness between the parties and the interests ofjustice.The provisions of the PEI Act and the Franchise Regulations that deal with disclosure and recission rightscame into force on January 1, 2007. Other provisions of the PEI Act came into force on July 1, 2006. Asthe PEI Act follows closely the Ontario and Alberta acts (provinces in which most of the franchises thatwould set up in Prince Edward Island are already operating), it should not be a deterrent to franchisorswho seek to have franchises established in Prince Edward Island.Page 31

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaNew Brunswick, Nova Scotia and Newfoundland and LabradorAt present, Prince Edward Island is the only Atlantic Province that has legislation in force which isspecifically dedicated to the regulation of franchises. However, many provincial acts of generalapplication will, of course, apply to franchise operations, including those that deal with commercialtenancies, employment standards and personal property security.On June 26, 2007, the New Brunswick government passed the Franchises Act (the “NB Act”), but at thedate of writing the NB Act had not been proclaimed in force. The NB Act is modeled closely on the PEIAct, above, and contains four main elements:• both parties owe each other a duty of fair dealing in relation to their agreement;• franchisees may form a franchisee association;• franchisors must provide prospective franchisees with full disclosure of all material informationbefore the franchise agreement is signed; and• franchisees may rescind a franchise agreement in circumstances (and within timeframes)comparable to those contained in the PEI Act.A unique element of the NB Act is the right of either party to a franchise agreement to require mediationof a dispute; although this does not preclude the exercise of other rights relating to the dispute.Gift CardsWith the growing popularity of the use of pre-paid electronic cards by many businesses, the NewBrunswick government has enacted the Gift Cards Act. The Gift Cards Act applies to all electronic cardswith a monetary value that are issued or sold in exchange for future purchase or delivery of goods orservices. Certain restrictions and disclosure requirements have been incorporated into the Gift Cards Actto protect the consumer. These restrictions include:• no expiry date except as may be provided in the regulations;• no person shall issue or sell a gift card for less than the value of the payment made by thepurchaser of the gift card; and• no person shall charge a fee to the purchaser or holder of a gift card for anything in relation to thegift card, except as provided in the regulations. The exceptions to the fee prohibition under theregulations include fees for cards that are sold for a charitable purpose and fees for thereplacement of lost or damaged cards.Page 32

CHAPTER 6TAXATION LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 6 – TAXATION LAWAny resident of Canada, whether individual or corporate, pays tax on its worldwide income. On the otherhand, non-residents pay tax on their Canadian source income, which will typically include income fromemployment or business carried on in Canada (subject to relief from any applicable income tax treaty towhich Canada is a party) and the disposition of taxable Canadian property.Since 2000, the government of Canada has steadily reduced corporate and personal income tax rates atall income levels, and has also introduced various tax measures to create a favourable tax environment toencourage investment and entrepreneurship in Canada. The current status of these initiatives is reflectedbelow.Personal Income TaxIndividual Canadian residents are taxed on a progressive basis – the higher the income, the higher thetax rate. For 2009, the federal tax rates payable are:Taxable IncomeTax Rate$0 - $40,726 15%$40,727 - $81,452 22%$81,453 - $126,264 26%$126,265 and over 29%In addition to federal tax, each of the Atlantic Provinces levies personal income tax directly on taxableincome earned by residents of the particular province. Provincial taxable income is calculated using thesame definition as federal taxable income. However, a separate set of tax brackets and tax rates areused to calculate provincial tax, and the tax credits available to an individual also vary from province toprovince. For 2009, the provincial tax rates payable are:New BrunswickTaxable IncomeTax Rate$0 - $35,707 9.65%$35,708 - $71,415 14.5%$71,416 - $116,105 16%$116,106 and over 17%Page 33

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaPrince Edward IslandTaxable IncomeTax Rate$0 - $31,984 9.8%$31,985 - $63,969 13.8%$63,970 and over 2 16.7%Nova ScotiaTaxable IncomeTax Rate$0 - $29,590 8.79%$29,591 - $59,180 14.95%$59,181 - $93,000 16.67%$93,001 and over 3 17.5%Newfoundland & LabradorTaxable IncomeTax Rate$0 - $31,061 7.7%$31,062 - $62,121 12.8%$62,122 and over 15.5%Corporate TaxationThe entity chosen by a taxpayer to conduct its business activities will determine how the business will betaxed. For instance, a sole proprietor adds the business income earned from the business to his or herpersonal income. A partnership must compute its income as though it were a separate taxpayer and thena partner’s share of the partnership income is taxed at the same rates applicable to other income earnedby such partner. On the other hand, an incorporated company is taxed as a separate legal entity. Anycorporation resident in Canada is liable for Canadian income tax on its worldwide income (subject to relieffrom applicable tax treaties to which Canada is a party). A corporation can establish Canadian residencyby incorporating in Canada (or a province within Canada) or by having its directing mind reside inCanada. The applicable federal corporate tax rate will vary, according to the nature of a corporation’sbusiness, its residency status and its affiliations.2 A surtax of 10% is applied on Prince Edward Island tax exceeding $10,000.3 A surtax of 10% is applied on Nova Scotia tax exceeding $12,500.Page 34

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaForeign Investment in CanadaForeign corporations planning to invest in Canada may establish their Canadian operations either througha branch or a Canadian subsidiary company. The tax treatment of a branch versus a subsidiary variessignificantly, so foreign investors should carefully consider which option will minimize their tax burdensbefore investing in Canada.Carrying on Business Through a BranchThe Canadian operations of a branch will be subject to Canadian corporate income tax on the net incomeof the branch. It will also be subject to withholding taxes on property income earned by the branch. Inaddition, the foreign entity will be subject to a branch tax at a rate of 25% of the net profits not reinvestedin Canada, unless such rate is reduced by an applicable tax treaty.Carrying on Business Through a SubsidiaryThe operations of a Canadian subsidiary will be taxed on its net income as a Canadian company. Inaddition, the subsidiary will be required to pay a withholding tax on interest, royalties and dividends paidto its parent. The rate of such withholding tax will vary according to the nature of the income and whethera tax treaty between Canada and the country of residence of the parent company is applicable.Federal Corporate TaxesThe federal corporate tax rates as of January 1st, 2009 are set out below. A corporation must meet therequirements of specific provisions contained in the federal Income Tax Act to qualify for these rates.General Rate 19%Small Business Rate 11%Small Business Deduction Limit $500,000Small Business Rate (on income in excess of $500,000) 19%Manufacturing & Processing Rate 19%The Canadian government ceased levying a capital tax on large corporations as of January 1st, 2006. Inaddition, the Canadian government maintains several federal tax incentives to encourage investment inCanada. These include:• Scientific Research and Experimental Development Program - Businesses involved in scientificresearch and experimental development can apply for tax credits applicable to expenditures suchas wages, materials and equipment.• Film Tax Credit Programs - The Canada Revenue Agency administers two film tax creditprograms to help the film industry in Canada.• Natural Resources Tax Incentives – Businesses involved in drilling, exploration, development andproduction of minerals, or oil and gas, may qualify for industry-specific tax incentives. Investorsshould also be aware that each of the four Atlantic provinces have established certain tax androyalty regimes targeted specifically at the natural resource sector.Page 35

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaProvincial Corporate TaxesIn addition to federal corporate income tax, corporations are subject to provincial corporate income tax.Where a corporation operates in more than one provincial jurisdiction, its taxable income must beallocated between the provinces based on federally-defined formulae. These formulae are proxymeasures of the actual business activity generated and are intended to reflect the level of businessconducted in a jurisdiction. The formulae are based on the existence of a “permanent establishment”,which is determined by considering whether there is a body or activity in place within a particular provincewith an ability and authority to generate or contribute toward revenues or the business purpose of thecorporation.New BrunswickNew Brunswick corporate income tax rates and bracket structures are applied to federally-defined NewBrunswick taxable income. Applicable rates for 2009 include the following:Business TypeTax Rate(on January 1, 2009)Tax Rate(effective July 1,2009)General 13% 12%Manufacturing & Processing 13% 12%Small Business 4 5% 5%The Province of New Brunswick has eliminated the Large Corporations Capital Tax as of January 1st,2009.Financial institutions are still subject to the Financial Corporations Capital Tax at a rate of three percenton taxable capital in excess of $10-million as defined in the New Brunswick Financial Corporation CapitalTax Act. The Financial Corporations Capital Tax is deductible from taxable income for federal andprovincial corporate income tax purposes.Businesses subject to tax in New Brunswick may be eligible for (or individually benefit from) one or moretax credits, tax incentives or benefits offered by the New Brunswick government. These include:• Dividend Tax Credit;• Film Tax Credit;• New Brunswick Political Contributions Tax Credit;• New Brunswick Labour-sponsored Venture Capital Tax Credit;• Research and Development Tax Credit; and• Small Business Investor Tax Credit.Of significance for entrepreneurs, the New Brunswick Small Business Investor Tax Credit has beenincreased for investments made on or after March 17, 2009 and now provides a 30% non-refundable4 The New Brunswick Small Business Deduction Limit is $500,000 as of January 1, 2009.Page 36

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadapersonal income tax credit of up to $75,000 per year (for investments of up to $250,000 per investor) toeligible non-corporate investors who invest in eligible small businesses in the province.Prince Edward IslandThe applicable corporate tax rate for a corporation operating in Prince Edward Island is dependent on thetype of business undertaken by a corporation. Applicable rates for 2009 include the following:Business TypeTax Rate(on January 1, 2009)Tax Rate(effective April 1,2009)General 16% 16%Manufacturing & Processing 16% 16%Small Business 5 3.2% 2.1%Financial Institutions must pay a Financial Corporations Capital Tax at a rate of three percent on taxablecapital in excess of $2-million as defined in the Prince Edward Island Financial Corporation Capital TaxAct. The Financial Corporations Capital Tax is deductible from taxable income for federal and provincialcorporate income tax purposes.In order to stimulate economic development, the government of Prince Edward Island has instituted anumber of tax incentives for corporations in specific industries. The Progressive Tax Rebate Programmeis an array of fiscal measures to attract investment from corporations involved in the following industries:aerospace, bio-sciences, export-focused manufacturing and processing, financial services andinteractive, information and communication technologies. Further assistance may be available from thedevelopment arm of the provincial government – Prince Edward Island Business Development Inc.For those businesses subject to corporate income tax in Prince Edward Island, various investment taxcredits may be available. These include:• Innovation and Development Tax Credit;• Corporate Investment Tax Credit;• Enriched Investment Tax Credit;• Specialized Labour Tax Credit; and• Share Purchase Tax Credit.5 The Prince Edward Island Small Business Deduction Limit is $500,000 as of January 1, 2009.Page 37

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaNova ScotiaThe applicable corporate tax rates for corporations operating in Nova Scotia include the following for2009:Business TypeTax RateGeneral 16%Manufacturing & Processing 16%Small Business 6 5%In addition, Nova Scotia still collects a Capital Tax on Large Corporations (“LCT”). The LCT is onlyapplied to corporations generating a taxable capital of over $5-million. The applicable LCT rates are asfollows, between July 1, 2008 to June 30, 2009:Corporation’s Taxable CapitalUnder $10-million$10-million and overLCT Rate$5-million deduction & 0.4% on remainingtaxable capitalNo deduction & 0.2% on taxable capitalFor the period July 1, 2009 to June 30, 2010, the applicable LCT rates are as follows:Corporation’s Taxable CapitalUnder $10-million$10-million and overLCT Rate$5-million deduction & 0.3% on remainingtaxable capitalNo deduction & 0.15% on taxable capitalThe LCT is in the process of being phased out and will no longer apply to income earned after June 30,2012.As in New Brunswick and Prince Edward Island, financial institutions are subject to a provincial capital taxat a rate of four percent on taxable capital in excess of $2-million as defined in the Nova ScotiaCorporation Capital Tax Act. The tax payable under this legislation is deductible from taxable income forfederal and provincial corporate income tax purposesBusinesses subject to tax in Nova Scotia may be eligible for (or individually benefit from) one or more taxcredits, incentives and benefits programs offered by the provincial government. These include:• Equity Tax Credit;• New Small Business Tax Deduction;6 The Nova Scotia Small Business Deduction Limit is $400,000 as of January 1, 2009.Page 38

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• Energy Efficiency Tax Credit;• Film Tax Credit;• Digital Media Tax Credit;• Labour-sponsored Venture-capital Tax Credit; and• Research and Development Tax Credit.Newfoundland and LabradorThe applicable corporate tax rates for corporations operating in Newfoundland and Labrador depend onthe type of business undertaken by a corporation and include the following for 2009:Business TypeTax RateGeneral 14%Manufacturing & Processing 5%Small Business 7 5%In addition to corporate income tax, businesses operating in Newfoundland and Labrador are also liablefor a payroll tax, known as the Health and Post Secondary Education Tax. This tax is payable at a rate oftwo percent by employers whose annual employee remuneration payable in the province exceeds $1-million.Further, unlike many Canadian provinces, Newfoundland and Labrador does not impose a general capitaltax on large corporations.Financial institutions with permanent establishments in Newfoundland and Labrador are subject to a fourpercent capital tax payable on an entity’s taxable capital in the province. Financial institutions withtaxable capital of less than $5-million are exempt from the tax, and financial institutions with less than$10-million of taxable capital are subject to capital tax to the extent that the taxable capital exceeds $5-million.Businesses subject to tax in Newfoundland and Labrador may be eligible for (or individually benefit from)one or more tax credits, incentives and benefits programs offered by the provincial government. Theseinclude:• Direct Equity Tax Credit;• Manufacturing and Processing Tax Credit;• Small Business Tax Credit;• Small Business Corporate Income Tax Holiday;• Labour-sponsored Venture-capital Tax Credit;• Film and Video Tax Credit;7 The Newfoundland and Labrador Small Business Deduction Limit is $500,000 as of January 1, 2009.Page 39

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• Resort Property Investment Tax Credit;• Scientific Research and Experimental Development Tax Credit; and• Economic Diversification and Growth Enterprises (“EDGE”) Program.Most significantly, corporations that qualify for the EDGE Program may receive a 10 or 15 year taxholiday from provincial corporate income and payroll taxes and a 50% tax rebate of federal taxes for thesame period, followed by a five year phase-in of these taxes.Sales and Services TaxThe federal government levies a five percent Goods and Services Tax (“GST”) on the supply of mostgoods and services. Prince Edward Island levies a separate Provincial Sales Tax (“PST”) of 10% ongoods and certain services, notably professional services. However, it provides a number of targetedexemptions from PST. Although GST may continue to apply, PST exempt items include:• gasoline, diesel, stove oil, fuel oil, coal and propane;• electricity;• manufacturing equipment;• clothing;• footwear;• inbound 1-800 Calls; and• outbound long distance telephone usage beyond 250,000 minutes/year.The provinces of New Brunswick, Nova Scotia and Newfoundland and Labrador are parties to anagreement with the federal government under which separate GST and provincial sales taxes have beenreplaced by a single Harmonized Sales Tax (“HST”) of 13% (the federal portion being five percent andthe provincial portion being eight percent) which is applied to the same goods and services as the GST.The GST/HST which is paid or payable on purchases, expenses and property used for commercialactivities may be recoverable by claiming input tax credits. As well, there are a variety of rebatesavailable which may allow businesses and individuals to recover the GST/HST paid on certain goods andservices.Imports and exports are subject to various exceptions from GST/HST. For example, certain goods andservices ordinarily taxable at five percent GST or 13% HST may be taxed at zero percent if they areexported from Canada and certain other conditions are satisfied.Property and Business TaxesDetails on property and business taxes are contained in Chapter 16 – Municipal Law.Property Transfer TaxesThe transfer of an interest in land may be subject to provincial transfer or registration fees, as well as toGST/HST. Provincial taxes and fees vary from province to province (and within the particular provinces),and there are varying exemptions available in each province.Page 40

CHAPTER 7PROPERTY LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaReal EstateCHAPTER 7 – PROPERTY LAWCanadian real estate law has roots that stretch back as far as the ninth century British feudal system. Asa result, the principles and concepts of land rights which apply in Canada are consistent with those thatexist in many other countries, including the United States and Great Britain. Fundamental to the propertylaw system is the concept that land can be subject to different interests held by different peoplesimultaneously. The highest interest in land that can be held is a freehold estate. There are severalcategories of freehold estate, the uppermost being the fee simple, which loosely translated means anoutright ownership of potentially infinite duration. An example of a less permanent category of freeholdestate is a life interest.The next highest interest in land is a leasehold estate, which is a temporary right of possession enjoyedby one party (the tenant), to land owned by another (the landlord). In addition to freehold and leaseholdestates in land, there are several other lesser categories of interests in land, including easements,licences, profits à prendre and restrictive covenants.Purchases and sales of land must be effected through written agreements, as verbal agreements forthese types of transactions are generally unenforceable under provincial legislation. A purchaser typicallyinitiates this process by signing an offer to purchase, which, when accepted by the vendor, becomes theagreement of purchase and sale. While certain legal obligations arise at this early stage, the actualtransfer of title does not take place until a later date, known as the closing date.Property transactions generally involve the services of a professional, licensed real estate agent. Thepurchaser will usually deposit a sum of money with the real estate agent “in trust”. Generally speaking,commercial real estate transactions differ from residential transactions primarily in terms of complexity.Agreements of purchase and sale tend to be more involved, the scope of required due diligence isconsiderably broader, environmental concerns are heightened, financing requirements are more complexand, very often, commercial transactions involve the acquisition of numerous assets in addition to realproperty. However, the real estate aspect of the transaction involves, fundamentally, the sameconsiderations as pertain to residential transactions.Purchasers, especially in more complicated transactions, should obtain legal advice from a lawyerpractising in the particular province to ensure the offer contains the appropriate representations,conditions and other provisions. As is described in more detail below, the purchaser’s lawyer will conductsuch title and due diligence searches as are necessary in order to ensure the vendor has good title to theproperty. The services of a land surveyor are also often recommended.Purchase and sale agreements usually contain clauses dealing with the following: the purchase price andadjustments (e.g. for property tax and utility payments already made by the vendor); the inspection of theproperty and the time allotted to conduct the necessary investigation of title by the purchaser; conditionswhich have to be satisfied prior to closing; the existence of any restrictive covenants or easementsaffecting the land; and responsibilities with respect to the preparation of closing and other necessarydocuments. Vendors normally refrain from giving representations and warranties with respect to thecondition of the property or its appropriateness for particular uses. Depending on the history of theproperty, its location or the previous uses that were made of the property, representations and conditionswith respect to the environmental condition of the property may be of central importance.On the closing date, the lawyers for both parties exchange transfer documents and funds (assuming theinvestigations into title and other related matters proved satisfactory). The purchaser’s lawyer thenregisters the title transfer documents and any related mortgage financing documents against the property.In New Brunswick and Nova Scotia, title transfer documents are now registered electronically.Page 41

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaFederal lawAs a consequence of the constitutional allocation to the provinces of jurisdiction over property and civilrights, the acquisition of real estate in a particular province is regulated by the laws of that province.There are few federal laws that affect real estate transactions, but notable exceptions include the reviewand regulation of foreign investment in Canada, the regulation of bankruptcy and insolvency, theregulation of certain major lending institutions in Canada, the levying and collection of income taxes (inparticular on capital gains realized by non-resident vendors) and federal sales tax (in connection with thesale and leasing of some real property), the application of federal environmental standards, and theapplication of federal laws and regulations in the transportation sector such as with railway and airportlands and navigable waters.Provincial lawEach province has its own laws and procedures relating to the establishment, protection and dispositionof interests in land. However, they all have in common a public system of land registration through whichtitle to land can be investigated and transferred.The provincial government in each province provides local, centralized facilities (“registry offices”), where,with certain provincial exceptions, all documents relating to ownership and other interests in land for aparticular locality are kept. To effect transfers of land or to create interests in or charges on land, specificdocuments prescribed by law must be registered in the appropriate registry office.Land Registry SystemGenerally there are two systems of land registration: the “registry system” and the Torrens or “land titles”system. Historically, all the Atlantic Provinces used the registry system. In this system, the registry officeis a depository for all documents relating to land. Every time a transaction takes place with respect toland and documents are registered with respect to that transaction, an entry is made in an indexregarding the people or corporations involved, the type of interest created or transferred, and otherrelated information. Using these indexes and the registered documents, the quality of title to a particularpiece of property can be determined.It is normally a requirement that complete copies of documents be filed under the registry system.However, Newfoundland and Labrador has introduced legislative changes that will see a notice-basedregistration system for mortgages commencing in late 2009. Actual mortgage documents will no longerbe registered. Only relevant information relating to the mortgage will be entered in the registry. This issimilar to the manner in which interests are registered in personal property registries, which areaddressed below.Before a certain piece of property or an interest in a certain property is acquired, all the documents in theregistry office pertaining to that property must be examined in an effort to determine what effect, if any,they have upon the title of the property, and who, aside from the registered owner, might have an interestin the property. The validity or legality of the documents registered is not guaranteed by the registryoffice; this is a determination made by a lawyer upon examination of the documents. Finding pertinentdocuments and determining the quality of the title of property is possible by tracing the “chain of title” ofthe property for a prescribed number of years (the length of time varies by province). The indexes aresearched using the names of the owners of the property, and this way, one can determine what each pastowner did with the property and whether any interests affecting the title of the property were granted toothers. This process must be repeated every time property changes hands, and is also usuallyperformed when land is being used as security for financing.To protect purchasers and lenders from forgeries or mistakes in registration, or to compensate for defectsnot discovered through the title search, title insurance is offered through various private companies.Page 42

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaLand Titles SystemPrince Edward Island and Newfoundland and Labrador still use the registry system. New Brunswick andNova Scotia are currently moving away from the registry system to the land titles system. The land titlessystem simplifies and expedites land conveyances and provides for greater certainty of title. Once landhas been registered in the land titles system, historical searches of title no longer have to be undertakenbefore land is transferred or charged as security. All charges and interests currently affecting theproperty are shown on a certificate issued by the government of the province, and one is entitled to relyon this certificate as guaranteeing the title, subject to the enumerated interests. This is known as theprinciple of indefeasibility. Indefeasible title to land is a right of ownership in land, good against the world,subject to the enumerated exceptions. Generally speaking, no enforceable interests in the land arecreated until they are registered. There are, however, some exceptions to this principle. For example,liens in favour of the government that arise from the failure of present or past owners to pay amountsowing pursuant to various provincial statutes may attach to the property and be effective withoutregistration against the property.To compensate parties for losses suffered due to inaccuracies in the title certificate or a breakdown in theregistration system, an assurance fund is maintained by the province.Failure to register an interest in land may result in serious consequences regardless of which system is inuse in a particular province. As well, the priority of instruments and interests are determined by the orderof their registration, not the date of execution. Thus, it is important to ensure that good title is both givenand received and that all instruments are registered promptly after execution.Related LegislationIn addition to requirements established under provincial land registry and land titles legislation, eachprovince has additional legislation affecting the validity of instruments used to transfer interests in land.For example, in addition to the writing requirements noted above with respect to the transfer of land,provincial legislation also extends writing requirements to many forms of leases. As well, all the AtlanticProvinces have legislation which prescribes standard forms of conveyances such as deeds and leases.See, for example, Nova Scotia’s Conveyancing Act.Ownership RestrictionsGenerally speaking, there are no restrictions on the ownership of land in New Brunswick, Nova Scotia orNewfoundland and Labrador. However, New Brunswick and Newfoundland and Labrador require thatcorporations holding certain interests in land must be registered as extra-provincial corporations undertheir provincial corporations legislation.The situation is different in Prince Edward Island. The Land Protection Act restricts land ownership bylimiting the aggregate amount of land a person (resident or non-resident) may own to 1,000 acres and acorporation to 3,000 acres.In certain circumstances the Lieutenant Governor in Council ("Executive Council") controls the amountof land a non-resident or corporation may acquire. A non-resident or corporation must make anapplication to the Island Regulatory and Appeals Commission ("IRAC") for approval of a land acquisitionif they have an aggregate land holding in excess of five acres or having shore frontage in excess of 165feet. IRAC reviews the application and makes a recommendation to Executive Council. ExecutiveCouncil may decide to approve, approve with identification, approve with conditions, or deny anapplication for land acquisition.Other MattersWhen acquiring property, it is important to be aware of both the nature of the interest being acquired andalso how it is being acquired. With respect to the former, title searches can reveal the practical extent ofthe interest being acquired. Ownership of land may not entail the right to do with it as one pleases, asPage 43

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadasome interests in land (such as restrictive covenants) may severely restrict the use that may be made ofthe property. Use restrictions may also result from legislation, such as environmental laws and municipalzoning bylaws (for example, in New Brunswick well field protection legislation governs the amount of anypotentially hazardous substance that may be kept on certain land). With respect to the manner in whichland is acquired, if there is more than one purchaser, title can be taken as joint tenants or as tenants incommon. This choice will affect each party’s subsequent rights to deal with the land.Taxation issues are another concern when acquiring real property. Depending on the location and type ofreal property purchased, the transfer of an interest in land may be subject to provincial transfer orregistration fees, as well as to GST/HST. Provincial taxes and fees vary from province to province, andthere are varying exemptions available in each province. Dispositions of property may also result incapital gains taxes being owed by the vendor. In some circumstances, the purchaser can be held liablefor the vendor’s capital gains taxes if they are not remitted by the vendor. Accordingly, it should bedetermined if it will be necessary for the purchaser to hold back an amount sufficient to cover the vendor’scapital gains taxes on closing.Personal PropertyUnlike most real property (real estate) systems, there is no registry of title/ownership of personal propertyin the Atlantic Provinces. There is no system, therefore, which allows a prospective purchaser orfinancier of chattel property in the Atlantic Provinces to confirm the current owner of such property. Eachof the Atlantic Provinces instead maintains an electronic Personal Property Registry (a “PPR”) which canbe accessed for the purposes of registration of security interests in personal property as well asconducting searches in order to determine whether security interests against certain personal propertyhave been registered (the PPR also permits the registration of certain other interests such asappointments of receiver and orders affecting marital personal property, but this section will discussconsensual security interests only).The PPR in each of the Atlantic Provinces is maintained pursuant to the Personal Property Security Actsof each province (the “PPSAs”). The PPSAs are derived from Article 9 of the Uniform Commercial Codeand replace a number of predecessor pieces of legislation in each of the Atlantic Provinces. The array ofpredecessor legislation resulted in a number of registration systems applicable to various types ofsecurity interests in personal property and a disjointed complex of rules for registration and priorities ofsuch interests. The enactment of the PPSAs has provided a single comprehensive statutory regimeusing a comprehensive registration system. In Newfoundland and Labrador, the PPSA is supplementedby the Securities Transfer Act which was brought into force in 2007. Together, the PPSA and theSecurities Transfer Act set out the applicable rules in Newfoundland and Labrador for the creation ofsecurity interests and the transfer of securities.Other than the registration of security by Canadian chartered banks pursuant to the federal Bank Act andthe registration of security against certain “specialty property” (such as ships, patents and trade-marks),lenders wishing to perfect security interests in personal property of borrowers in the Atlantic Provinces,generally speaking, will register an electronic notice of the security interest in the relevant PPR.Searches of the PPR may also be conducted in order to determine, at least on a preliminary basis, therelative priority of such security interest.The PPRs are essentially “paperless” such that the information relating to security interests is enteredelectronically and the paper form of security agreements which are entered into between the lender andthe borrower are not registered. The PPRs produce a paper form of verification of registration as well asprinted search results when the registry is searched.Searches of the PPR can be conducted against a debtor’s name (to determine whether a particularcompany, for example, has granted security over any of its personal property); against a serial number ifapplicable (certain prescribed goods under the PPSAs must be registered with reference to their serialnumbers in order that the security interests therein shall enjoy maximum protection); or against aregistration number (to determine whether a particular registration remains effective).Page 44

CHAPTER 8SECURITIES LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaRegulatory OverviewCHAPTER 8 – SECURITIES LAWEvery province and territory in Canada has its own securities regulatory system, including separatesecurities legislation and governing authorities. As a result, national securities transactions requirecompliance with several regulatory schemes administered by different authorities. In recent years, thesubstantive requirements of these different regulatory schemes have largely been harmonized under asystem of national instruments adopted as rules by the regulatory authorities in most or all of thejurisdictions. The federal government has proposed creating a single national securities regulatorysystem, however, this initiative remains a proposal at this time.Each of the four Atlantic Provinces has its own Securities Act, which while not identical, share manycommon features. Provincial securities legislation creates a “closed system” for the trade of securitiesand regulates both the issuance and distribution of securities by the issuing company, as well assecondary trading by security holders in the respective provinces.The purpose of securities legislation is to protect investors, which is accomplished in two basic ways.First, securities legislation strives to ensure that all investors and security holders have as muchinformation as possible concerning the securities that they are acquiring or selling. This is accomplishedby both initial and continuous disclosure requirements. Second, trades are required to be made throughprofessionals registered under the legislation. This ensures that investors are advised by knowledgeablepersons prior to making an investment.Disclosure of Material InformationCompanies which issue securities to the public (“reporting issuers”) must provide both initial andcontinuous disclosure. The key to initial disclosure is the “prospectus” - a detailed document whichdescribes the company’s business, financial position and securities. Provincial securities legislation alsorequires that continuously updated information on the reporting issuer be made publicly available,including details on any material changes to the business of the company, insider trading information,early warnings for take-overs, and up-to-date financial information. These disclosure requirements aregenerally consistent across the provinces.Listing RequirementsIssuers who wish to list their securities for trading on stock exchanges must satisfy minimum listingrequirements set by the stock exchange relating to their business, management, issued capital,distribution of securities and financial resources. Issuers must sign a listing contract with the stockexchange and agree to comply with the rules of the stock exchange.Listed issuers must notify, and in some cases obtain the consent of, the stock exchange before makingcorporate changes or entering certain transactions, such as (i) changes in capital structure, (ii) materialtransactions such as business combinations, and (iii) issues of shares or options. Listed issuers mustalso make regular filings with the exchanges, pay annual fees and satisfy timely disclosure requirementsin addition to the continuous disclosure requirements under provincial securities laws.Exempt TransactionsThe general rule under securities legislation is that a company may not issue securities unless it files aprospectus and the issue is completed through a registered person. However, it is recognized that not allinvestors require such protection for all kinds of securities, so the legislation and rules adopted under thenational instruments contain a number exemptions from the registration and prospectus requirements.Additional exemptions may be granted at the discretion of the various provincial securities regulatoryauthorities.It is important to note that although one of the advantages of issuing securities under the exemptionsnoted below is that the issuer is not required to issue a prospectus, in some circumstances it is necessaryPage 45

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadato provide purchasers with certain disclosure documents when a company is attempting to sell itssecurities. Even if not mandated, it may be commercially necessary to have a disclosure document togive to prospective purchasers in order for them to have the information required to make an investmentdecision.The following are a few of the more useful prospectus and registration exemptions set out in provincialsecurities legislation, local rules, policies and/or national instruments adopted by the various provincialsecurities regulatory authorities.Accredited Investor ExemptionEach Atlantic Province has an exemption which allows a person or company to purchase the security ofan issuer if the purchaser purchases the security as principal (i.e. not on behalf of someone else) and isan “accredited investor”. The most common categories of “accredited investors” are listed below:(a)(b)(c)an individual who, either alone or with a spouse, beneficially owns, directly or indirectly,financial assets having an aggregate realizable value that before taxes, but net of anyrelated liabilities, exceeds $1-million;an individual whose net income before taxes exceeded $200,000 in each of the two mostrecent years or whose net income before taxes combined with that of a spouse exceeded$300,000 in each of the two most recent years and who, in either case, reasonablyexpects to exceed that net income level in the current year; andan individual or an entity, other than an investment fund, that either alone or, in the caseof an individual, with a spouse, has net assets of at least $5-million, as shown on themost recently prepared financial statements for the individual or entity.There are no limits on the number of accredited investor purchasers or the aggregate price.Private Issuer ExemptionUsing a registered dealer and clearing a prospectus involve costs that rarely can be justified or borne by asmall, private company. Accordingly, exemptions are provided for private issuers to sell securities, butnot to the “public”. To qualify for this exemption, a company must:(a) have a restriction on the transfer of its securities in the company’s constating documentsor in a shareholders agreement;(b)(c)(d)not be a reporting issuer or an investment fund;not have more than 50 shareholders (not counting employees); andhave distributed its securities to persons who are not the “public”.Whether a person falls into the “public” category can be a difficult question to answer, and involves amixture of fact and law. Generally speaking, the approach taken is based on the view that the publiccomprises those members of a community who need the protection of securities legislation and requirethe information contained in a prospectus to make an informed investment decision. A number of factorsare relevant in determining whether a person is part of the “public” in respect of the trading of a particularsecurity, including the number of offerees and purchasers in a transaction, the relationship of thepurchasers to the issuer, the sophistication or investment expertise of purchasers or their access toadvice, the net worth or ability of the purchasers to risk a complete loss of their investment, the manner inwhich the offering is made, the purpose of the offering, and the circumstances relating to the issuer.Because a private issuer is, by definition, not a reporting issuer, there is no public or liquid market for itsequity securities, and there may be limited access to information about the company’s business orPage 46

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadafinances. Investors generally must be prepared to be in for the long term. As a result, it can be difficult forthe owners of the business to raise money using the private issuer exemption.Family, Friends and Business Associates ExemptionAll of the Atlantic Provinces have adopted an exemption which allows for trades in the security of anissuer if the purchaser purchases the security as principal and is one of the following:(a)(b)(c)(d)(e)(f)(g)(h)(i)a director, executive officer or control person of the issuer, or of an affiliate of the issuer;a spouse, parent, grandparent, brother, sister or child of a director, executive officer orcontrol person of the issuer, or of an affiliate of the issuer;a parent, grandparent, brother, sister or child of the spouse of a director, executive officeror control person of the issuer or of an affiliate of the issuer;a close personal friend of a director, executive officer or control person of the issuer, or ofan affiliate of the issuer;a close business associate of a director, executive officer or control person of the issuer,or of an affiliate of the issuer;a founder of the issuer or a spouse, parent, grandparent, brother, sister, child, closepersonal friend or close business associate of a founder of the issuer;a parent, grandparent, brother, sister or child of the spouse of a founder of the issuer;a person or company of which a majority of the voting securities are beneficially ownedby or a majority of the directors are persons described in paragraphs (a) to (g); ora trust or estate of which all of the beneficiaries or a majority of the trustees or executorsare persons described in paragraphs (a) to (g).There are no limits on the number of purchasers or the aggregate price under this exemption.Offering Memorandum ExemptionEach Atlantic Province has adopted an exemption for trades by an issuer in a security of its own issue ifthe purchaser purchases the security as principal and, at the same time or before the purchaser signs theagreement to purchase the security, the issuer delivers an offering memorandum to the purchaser, andobtains a signed risk acknowledgement. The offering memorandum must contain certain informationabout the issuer and other disclosures that are specified in the securities legislation and rules and aresimilar to, but generally somewhat less onerous than, the prospectus disclosure requirements, and inPrince Edward Island, the purchaser must be an “eligible investor” or be investing less than $10,000. Theeligible investor is similar to the accredited investor definition for individuals, but with lower thresholds.Unlike other exemptions, purchasers under an offering memorandum must also be granted rights torescind purchase commitments and rights of action for misstatements in the offering memorandumcomparable to those available to purchasers under a prospectus. There are no limits on the number ofpurchasers.Minimum Purchase Amount ExemptionA transaction is exempt from the prospectus and registration requirements of provincial securitieslegislation where the purchaser purchases, as principal, securities which have an aggregate acquisitioncost of at least $150,000. There are no limits on the number of purchasers, but purchasers must nothave been formed for the purpose of making the investment (i.e. investors may not pool their resources ina new entity to take advantage of this exemption).Page 47

CHAPTER 9INTELLECTUAL PROPERTY

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 9 – INTELLECTUAL PROPERTYIntellectual Property RightsIntellectual property rights are intangible rights. Unlike other personal property rights, they cannot betouched, or seen. However, they are often a very valuable asset and care should be taken to ensure thattheir value is both maximized and protected.Some intellectual property rights (including patents, registered trade-marks and copyright) are created bystatute; they exist as a result of legislation which both defines and limits the scope of protection affordedto the intellectual property right. Copyright, patents and trade-marks are all governed by federallegislation and thus the rights associated with them do not vary between provinces.Other intellectual property rights (including trade secrets and unregistered trade-marks) are known as“common law rights”, i.e. they have evolved through time as a result of court decisions but have not beenset out in a statute like the Patent Act or the Copyright Act.Trade-marksA trade-mark may be a word or combination of words, designs, symbols, colours, or the “get-up” of apackage or product (or a combination of these features), used to distinguish the wares or services of oneperson or organization from those of others in the marketplace.Trade-marks are important to any industry where products or services are promoted or advertised. Oncepeople become familiar with a particular trade-mark, they associate a certain standard with products thatare marketed under that trade-mark. Trade-marks come to represent not only actual wares and services,but also the reputation of the producer.Trade Name vs. Trade-markA trade name is the name under which a business is conducted, whether it be one’s own name or thename of a corporation or a partnership or a name adopted for a segment of that business, i.e. a divisionof a company. A trade name can be registered under the federal Trade-marks Act only if it is also usedas a trade-mark, i.e., it is used to identify wares or services.For instance, let’s say you own a company called ABC Ltd. that develops videogames:Example 1: People know your videogames under the name Galaxy Games, because this is thename you have associated with your videogames. You can, therefore, register Galaxy Games asa trade-mark. However, you would not be able to register your trade name (ABC Ltd.) as a trademarkbecause even though the official name of your company is ABC Ltd., no one associates itwith your wares. ABC Ltd. cannot be considered a trade-mark unless you begin to use it as one.Example 2: If your company name was Galaxy Games Ltd. and you marketed your videogamesunder this name, you could register this as a trade-mark even though it is also your trade name.Provincial legislation in Nova Scotia and New Brunswick requires that any company that operates itsbusiness under a trade name rather than under the name of the incorporated entity must register its tradename. In Prince Edward Island, companies are not required to register their trade names, but may do soif they wish. Before a name can be registered, a computerized name search must be conducted. Nameswhich closely resemble existing business names may not be registrable.Unlike the other three Atlantic Provinces, Newfoundland and Labrador does not have a trade namesregistry. The only registry for business names is the corporate registry maintained by the Registry ofCompanies Division of the Government of Newfoundland and Labrador. A company’s registeredcorporate name is not necessarily the same as its trade name. Accordingly, in Newfoundland andPage 48

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaLabrador there is no way to know whether or not a trade name is being used by another party. It isadvisable that businesses which use a trade name register the name as a registered trade-mark ifpossible, as they otherwise run the risk of a dispute arising over the rights to the use of that trade name.Registered Trade-mark vs. Unregistered Trade-markThere are two ways to get trade-mark rights:• by registering a trade-mark in the Trade-mark Registry in accordance with the federal TrademarksAct (registered trade-mark rights); or• by using a trade-mark in the marketplace (unregistered trade-mark or common law trade-markrights).Common law trade-mark rights are created over time by the continued use of a trade-mark in associationwith goods or services. The strength of these rights will depend on the strength of the associationbetween the trade-mark and the goods or services being sold. Common law trade-mark rights only existin the geographical areas where the goods or services are marketed.Notwithstanding the existence of common law trade-mark rights, securing registered trade-mark status isrecommended. Registration is evidence of ownership and becomes very useful in the event of a dispute.In a dispute, the registered owner does not have to prove ownership; the onus is on the challenger toprove that the registered owner does not have the right to use the trade-mark. Use of an unregisteredtrade-mark can lead to a lengthy, expensive legal dispute over who has the right to use it.Registered trade-mark rights give the owner the exclusive right to the use of the trade-mark in Canada inrespect of the goods and services associated with it, and the right to prevent others from using the sameor confusingly similar marks for a period of 15 years. The registration process takes approximately 18months to two years provided that no oppositions to the trade-mark registration arise. However, using atrade-mark prior to obtaining registration is common and acceptable provided that adequate searchinghas been done to ensure that the trade-mark is not already being used by someone else.Losing Trade-mark RightsTrade-mark registrations may be renewed indefinitely subject to the continued use of the mark. A failureto use a trade-mark may expose a trade-mark owner to an expungement proceeding which, if successful,would result in the removal of the mark from the registry. A failure to use a common law trade-markerodes the strength of the trade-mark and makes it vulnerable to challenge by others.It is also possible to lose a trade-mark right if the distinctiveness of the mark is lost and it becomes“generic”. Examples of trade-marks that have become generic in some jurisdictions include “Thermos”,“Aspirin” and “Margarine”. It is incumbent upon a trade-mark owner to watch out for and preventinfringements of its trade-mark rights and enforce those rights to avoid losing distinctiveness of the mark.Infringing Trade-markUsing another party’s trade-mark or using a mark that is confusingly similar to another party’s trade-mark(e.g. “Appled Computers” vs. “Apple Computers”) constitutes a trade-mark infringement. Passing offone’s own goods or services so that they appear to be someone else’s (e.g. labelling footwear “Nike” if itwas not produced by Nike) is also a prohibited activity.CopyrightCopyright in Canada is governed by the federal Copyright Act. Copyright gives its owner, among otherthings, the sole right to produce, reproduce, copy or rent the protected work. It does not prevent otherpersons from viewing the copyrighted material. For example, copyright does not prevent you fromPage 49

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadareading a book you have purchased, or giving your copy of the book to another person. However, itwould prevent you from photocopying the book and selling the copies to other parties.Copyright protects various kinds of “works”. Copyright can subsist in any original literary, artistic, musicalor dramatic work, or any substantial part thereof, in any material form whatsoever. The word “original” iskey to defining a work that qualifies for copyright protection. Originality can be tricky to determine andmany court cases revolve around the question of whether a work has been copied, even in part, fromsomeone else’s work. In order to be protected by copyright, the work also has to have some degree offixation or permanency.Copyright arises automatically upon the creation of the work and no registration is required, although, liketrade-marks, the registration of copyright is useful. A certificate of registration is evidence that the work isprotected by copyright and that the registered party is the owner. In the event of a legal dispute, theregistered copyright holder does not have to prove ownership; the onus is on the opponent to disproveownership.Copyright protects the expression of the original work but not the underlying ideas. As long as there isnot actual copying involved, anyone can produce a similar work even if they are using the sameunderlying ideas. For example, you may have a brilliant idea for a mystery plot but until the script isactually written, or the motion picture produced, there is no copyright protection. Copyright is restricted tothe expression in a fixed manner (text, recording, drawing) of an idea; it does not extend to the idea itself.Facts, ideas and news are all considered part of the public domain, i.e., they are everyone’s property.In Canada, copyright generally subsists for the life of the author plus 50 years but there are exceptionsdepending on the type of work and whether it was authored by one or more persons. When a work iscreated by an employee in the course of his or her employment, the copyright relating to that work isautomatically owned by the employer unless there is an agreement to the contrary. A work created by anindependent contractor is owned by the independent contractor unless there is an agreement to thecontrary, despite the fact that the work in question may have been commissioned and paid for bysomeone else.Exceptions to InfringementThere are certain uses that can be made of copyrighted material which do not constitute infringement: (i)quoted work which is attributed to the author; (ii) fair use; (iii) research and private study; (iv) criticism orreview of someone else’s work; (v) news reporting; and (vi) some limited educational uses.PatentsPatent law in Canada is governed by the federal Patent Act. A patent gives the owner of the patent theexclusive right to manufacture, use and sell the invention claimed in the patent, and the ability to preventothers from doing the same. A patent protects the idea embodied in the claimed invention, and not justthe expression of the idea. Thus, even if you independently develop inventions on your own, without anyknowledge of an existing patent, you can still be barred from making, using or selling the invention untilthe patent that previously claimed the invention has expired.Patents offer inventors monopolies on their creations for specific periods, and thus provide incentives forresearch and development. The length of time during which a patentee is able to exercise its exclusiverights is currently 20 years from the Canadian application date. Without the possibility of patentprotection, many people might not take the risks or invest the time and money involved in devising andperfecting new products.Patents are also a means of advancing technology. The patent discloses in clear and specific terms howthe invention being patented works although no one else can use the information until the patent hasexpired. Because of the exclusivity afforded to patent holders, patents are more difficult to obtain thanother forms of intellectual property rights.Page 50

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaRequirementsIn order to be issued a patent, the invention must meet all four of the following requirements:• Patentable subject matter: Any new and useful art, process, machine, manufacture orcomposition of matter, or improvement, can be the subject of a patent. Scientific principles,mathematical equations and other like “inventions” are not patentable subject matter.• Novelty: The invention must not have been disclosed in a manner such that it had becomeavailable to the public prior to the filing date of the application (if the disclosure was by a thirdparty), or prior to one year before the filing date of the application (if the disclosure was by theinventor).• Non-Obviousness: The invention must reflect some amount of inventive ingenuity; in other words,it must not be obvious to a skilled professional in the industry, having regard to all of the otherinformation and knowledge of the industry which is available to him or her.• Utility: The invention must serve some functional purpose and it must deliver the results promisedin the patent, if any.Because patent applications become public documents, the world at large gets to know the details of aninvention. After the patent expires, there is nothing to prevent others from making the inventionthemselves. Accordingly, inventors sometimes choose to maintain the invention as a trade secretinstead.Trade SecretsA trade secret is information that is actually secret in an objective sense. For example, the recipes forCoca Cola and Kentucky Fried Chicken are not patented – they are trade secrets, unknown to anyoneother than the companies that own the products and their employees. If the recipes were patented,anyone could use them after the patent expired in 20 years but as a trade secret, the rights are potentiallyperpetual.However, there are inherent problems with attempting to protect an invention as a trade secret. There isno protection for the inventor if another person independently invents or discovers the subject matter ofthe trade secret and there is nothing to prevent that person from using or exploiting the information,applying for a patent or publishing the information. Furthermore, once the information becomes public,the trade secret loses all of its value. Although the owner of a trade secret may have a right of recourseagainst a third party who, through wrongful actions, discloses the trade secret, this may not compensatethe owner for the loss in value or prevent innocent parties who receive the information from exploiting it.Integrated Circuit TopographiesTopographies are innovative, three-dimensional circuit designs used in many different products.Examples of such products are automobiles, industrial robots, cameras, spacecraft and computers. Thefederal Integrated Circuit Topography Act (“ICTA”) provides protection against the copying of registeredtopographies, but does not prevent others from developing integrated circuit products which use othertopographies to provide the same electronic functions. A topography will qualify as original and obtainprotection under the ICTA if it is developed through the application of intellectual effort, and if it is notproduced by the mere reproduction of all, or a substantial part, of another topography. The registration ofthe topography gives the creator an exclusive right in the topography for a period of 10 years. The ICTAdoes not protect pre-existing topographies which are commonplace among topography designers orintegrated circuit product manufacturers.Page 51

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaIndustrial DesignsAn industrial design is a feature of an object, whether a shape, configuration, pattern or ornament or anycombination of those features, that, in the finished article, are assessed by appearance as opposed toutility and functionality. Industrial designs which are original and not similar to existing designs may beregistered under the federal Industrial Design Act and receive a monopoly on the design for a period of 10years.Plant Breeders RightsThe federal Plant Breeders’ Rights Act (“PBRA”) gives plant breeders in Canada certain rights relating tothe production of new plant varieties. The PBRA gives plant breeders the exclusive right to sell andproduce the protected variety in Canada, to sell the variety’s propagating material, to use the variety incommercially producing another variety, to use the variety in producing ornamental plants, and to licenseothers to do any of the above, for a period of 18 years.Page 52

CHAPTER 10TECHNOLOGY LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 10 – TECHNOLOGY LAWThe previous chapter on intellectual property is relevant to almost all commercial aspects of technologylaw. For example, a computer program may have copyright in its instruction manual, source code, objectcode, musical works and its text and graphic designs. The same computer program may contain apatented process, an integrated circuit topography and may be sold under a particular trade-mark.Licences and AssignmentsFrequently, the technology protected by intellectual property rights is licensed or assigned to others foruse. An assignment is a transfer of ownership rights from one party to another; whereas a licence doesnot transfer any property interest or title to the work to the licensee. A licence is a contract that allowssomeone to use the work on the terms and conditions set out in the licence. A licence can be structuredso that it is non-exclusive, allowing the licensor to grant as many licenses as it chooses to differentparties. Limited time frames, usage rights, territorial restrictions and other terms and conditions can beplaced on the licence. With an assignment, the original rights of the owner are generally lost. Federalregistries such as the Trademarks Registry and the Copyrights Registry should be notified of transfers ofownership of registered intellectual property rights. Certain transfers must be documented in writing inorder to be valid.Confidentiality AgreementsConfidentiality agreements are frequently used as a tool to protect technology. They may be used toensure that information an employee obtains through his or her employment is kept confidential. Theymay also be used to protect information that is disclosed to third parties.For example, assume that a company has created software that makes people look younger inphotographs than they actually are. The company may wish to license this software to a cameramanufacturer. The camera manufacturer will likely want to try out the software before it agrees to licenseit. In order to protect the company’s interests, it would be prudent to have the camera manufacturer signa confidentiality agreement before supplying them with the software.An issue also arises with respect to technical assistance. Frequently when software is licensed toanother party, information needs to be disclosed so that the licensee can fix whatever problems arise withthe use of the software. Again, this can be dealt with by an appropriately worded confidentialityagreement.It is important to define what is meant by “confidential information” at the outset of the confidentialityagreement. Unless confidential information is clearly identified, it will be difficult to know what tradesecrets and other information are protected from unauthorized disclosure. In fact, most litigation in thearea of trade secrets or confidential information arises in situations where neither party is clear as to whatwas the trade secret or confidential information. It is also important to identify the purpose for which theconfidential information is being disclosed and the permitted uses of the confidential information. Theseprovisions are important so that the parties fully understand the scope and their respective obligationsand responsibilities under the agreement. Intellectual property rights and ownership in and to theconfidential information should also be addressed so that third parties receiving such information do notcreate patent positions derived from that confidential information.Electronic Information and e-ContractsBusiness transactions are frequently accomplished using electronic media. Most contracts made throughelectronic media such as e-mail and “click wrap” agreements (agreements where acceptance isexpressed by touching or clicking on an icon or computer screen) are treated the same as contractsmade through non-electronic media and are considered equally enforceable provided that they meet thegeneral requirements of contract law. However, there are certain documents such as wills, documentsPage 53

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadaevidencing title to land, powers of attorney and most negotiable instruments, which require originalsignatures and thus cannot be finalized in electronic format.All of the Atlantic Provinces have enacted provincial legislation to deal with several important electroniccommerce issues. In New Brunswick, the Electronic Transactions Act governs electronic commerce. InNova Scotia, Prince Edward Island and Newfoundland and Labrador the relevant legislation is known asthe Electronic Commerce Act. The legislation across the four provinces shares some common features,including the following significant provisions:• Information will not be denied legal effect simply because it is electronic nor will a contract bedenied legal effect or enforceability by reason only that electronic means of communication wereused in its formation.• A requirement that information be in writing is satisfied by electronic information provided that theinformation is accessible and capable of being retained for subsequent reference.• A requirement that information be in a specified non-electronic form is acceptable in electronicform provided that it is provided in substantially the same form as the non-electronic form and isaccessible and capable of being retained for subsequent reference.• A requirement for a signature will generally be met by an electronic signature, subject to certainexceptions.• Electronic information is not considered to be capable of being retained where the personproviding the electronic information prohibits the printing or storage of the information by therecipient.Page 54

CHAPTER 11PRIVACY LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 11 – PRIVACY LAWThe Personal Information Protection and Electronic Documents Act (“PIPEDA”) is federal legislationwhich imposes statutory obligations and restrictions on private sector organizations for the collection, useand disclosure of personal information of others and applies in all provinces and territories, exceptAlberta, British Columbia and Quebec, which have enacted their own “substantially similar” legislation.As of January 1, 2004, private sector organizations in Atlantic Canada that collect, use or disclosepersonal information in the course of their commercial activities are required to comply with PIPEDA.Personal information means information about an identifiable individual, but does not include the name,title or business address or telephone number of an employee of an organization. Under PIPEDA,organizations are required to comply with the key principles set out in the Model Code for the Protectionof Personal Information, which include the following:• Accountability: Organizations are responsible for personal information under their control andmust designate an individual or individuals who are accountable for the organization’s compliancewith the principles set out in PIPEDA.• Identifying Purposes: The purposes for which personal information is collected must be identifiedby the organization at or before the time the information is collected.• Consent: The knowledge and consent of the individual are required for the collection, use, ordisclosure of personal information, except where inappropriate.• Limiting Collection: The collection of personal information must be limited to that which isnecessary for the purposes identified by the organization. Information must be collected by fairand lawful means.• Limiting Use, Disclosure, and Retention: Personal information must not be used or disclosed forpurposes other than those for which it was collected, except with the consent of the individual oras required by law. Personal information must be retained only as long as necessary for thefulfilment of those purposes.• Accuracy: Personal information must be as accurate, complete, and up-to-date as is necessaryfor the purposes for which it is to be used.• Safeguards: Personal information must be protected by security safeguards appropriate to thesensitivity of the information.• Openness: Organizations must make readily available to individuals specific information abouttheir policies and practices relating to the management of personal information.• Individual Access: Upon request, an individual must be informed of the existence, use, anddisclosure of his or her personal information and must be given access to that information. Anindividual must be able to challenge the accuracy and completeness of the information and haveit amended as appropriate.• Challenging Compliance: An individual must be able to address a challenge concerning theorganization’s compliance with the above principles to the designated individual or individualsaccountable for the organization’s compliance.The Privacy Commissioner of Canada is responsible for overseeing the administration of the legislationand investigating and adjudicating complaints. Complaints regarding an organization’s compliance canbe filed by any person or by the Privacy Commissioner. The Privacy Commissioner has broad powers,including the right to conduct audits, undertake investigations, issue subpoenas, compel persons to giveevidence, and enter the premises of an organization and examine or obtain copies of records relevant toPage 55

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadaan investigation. There is an offence provision under PIPEDA with fines for obstructing the PrivacyCommissioner in an investigation or audit, destroying personal information after an access request hasbeen made, and disciplining an employee for lodging a complaint against his or her employer for PIPEDAviolations.PIPEDA governs only personal information collected, used or disclosed in the course of an organization’s“commercial activities” and does not otherwise apply to the employer-employee relationship, unless theorganization is a federal work, undertaking or business. Provincial laws govern the treatment ofemployee information. Employers should, however, follow the general rules applicable in the collection ofpersonal information - namely, limit collection and disclosure to only what is reasonably necessary.Page 56

CHAPTER 12LABOUR AND EMPLOYMENT LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 12 – LABOUR AND EMPLOYMENT LAWEmployment relationships in Atlantic Canada are governed by both statute and common law. EachAtlantic Province has its own set of statutes that are relevant to both unionized and non-unionizedworkplaces. Alternately, employers in Atlantic Canada may be governed by federal law where theirbusiness falls under federal jurisdiction.The first section of this chapter deals with an overview of the common law with respect to hiring,addressing factors that the courts consider relevant at the first stage of the employment relationship thatmay impact on termination.The next section provides an analysis of provincial legislation that impacts on the ongoing relationshipincluding employment standards and labour relations.The final section addresses the federal regulatory regime (i.e. the Canada Labour Code), which isapplicable only to employers who are engaged in federal industries within Atlantic Canada. It alsodiscusses criminal legislation concerning occupational health and safety matters, which may impact onboth federal and provincial employers.HiringInducementEmployers who recruit employees from secure employment are at risk of being held liable for enhancedseverance compensation if such employees are subsequently terminated. The time to address this is atthe outset of the employment relationship, in an appropriately crafted employment contract.Courts will consider whether an employee was induced to accept employment in assessing the amount ofreasonable notice to be awarded when the relationship ends without just cause. Courts will consider theinducement factor even where a considerable length of time has passed since hiring.Those responsible for the hiring process should be given instructions as to any permissiblerepresentations, and to exercise caution in “selling” the job to a potential recruit. In instances whereemployers are using the services of “head hunters”, the retainer should clearly outline the scope of theindividual’s authority with respect to representations about the job.The best approach is to have an employment agreement with an “entire agreement” clause, negating anypre-contractual representations.It is important to deal with compensation for unjust termination in the contract at the time of hiring. Forexample, the parties should agree on the amount of notice required to terminate the relationship, andinclude it in the employment agreement.Employment Applications – The “Dos and Don’ts” of RecruitingEmployers have the responsibility to ensure that no unlawful discrimination occurs in the recruitment andselection process based on human rights protections. Equality of opportunity is an integral part of therecruitment and selection process and employers have an interest in developing and adhering to fair,non-discriminatory recruitment and selection policies.Specific information on conforming to provincial human rights legislation with respect to an employmentapplication is included below.Human rights obligations continue through the interview process. Employers should be aware thatcandidates who later make a human rights complaint have the right to ask for copies of any notes madePage 57

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadaduring the interview. Likewise, the employer may defend itself by depending on notes made during theinterview.Employment References – Background InvestigationsStudies suggest that up to one-third of job applicants misrepresent themselves or their credentials ontheir applications and résumés. Employers should state on application forms when they will seekreferences. Prior to contacting a reference, the employer should obtain express permission from thecandidate. When asking information from a reference, do not ask for personal information or forconjecture about the applicant but ask structured and relevant questions that will enable you to gainaccurate additional information about the candidate’s abilities.Holding particular qualifications, training or licences may be important to a job. It is reasonable to askcandidates for proof of qualification. If checks on qualifications are going to be made, it is good practiceto ensure that the candidate knows, and that copies of any relevant documents will be held in theirpersonnel file.Background investigations may also be necessary in certain circumstances (e.g. driver abstracts). Thistype of investigation may be useful in determining safety risks as well as suitability for a particularposition.When conducting any reference or background investigation, employers should at all times be aware ofthe risk of attracting a human rights complaint from a candidate who is not hired on the basis of thereference or background investigation. The following section details employers’ human rights obligationsand considerations in Atlantic Canada.Human Rights ConsiderationsAll Canadian provinces have human rights legislation that prohibit discrimination based on enumeratedgrounds. In addition, each statute limits employers from eliciting information, directly or indirectly, aboutany of the protected characteristics of an application for employment.Each Atlantic Province has a slightly different array of protected characteristics, but they all include thefollowing: race, colour, national origin, physical disability, mental disability, marital status, sexualorientation, sex, and political belief. Employers in each province are prohibited from discrimination on theenumerated grounds unless able to establish a bona fide occupational qualification justifying thediscrimination. A discriminatory standard, requirement or qualification may be justifiable where it can beestablished that the discrimination is rationally connected to the function performed; adopted in an honestand good faith belief that it is necessary to fulfill a certain purpose; and the individual cannot beaccommodated without undue hardship to the employer. Undue hardship is determined by consideringfactors such as cost to the employer, health and safety implications and workplace morale.Questions related to any of the prohibited grounds listed in the provincial legislation should be avoided inthe pre-employment stage, since this could lead to a complaint of discrimination from a prospectiveemployee who is not awarded the job. Inquiries that should be avoided include:• questions about physical characteristics such as eye or hair colour or requests for photographsas this may elicit information related to an individual’s race;• questions about religious affiliations, churches attended or customs observed;• questions regarding citizenship (however, an application or interviewer may ask whether theapplicant is legally entitled to work in Canada);• questions such as “maiden” or “birth” name; child care arrangements; marital status; or anyinformation about a spouse that may discriminate on either the basis of sex or family status; andPage 58

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• questions about health, illness, mental disorders, medical history, workers’ compensation claims,or accommodation of disability-related needs.Certain questions that invite information otherwise discriminatory in nature, may be asked in the posthiringstage where the employer has a legitimate need for the information (e.g. insurance, benefits plansor taxation) or if an assessment on accommodation must be made.Mandatory retirement policies may be considered invalid and unenforceable under Atlantic Canada'sprovincial human rights law unless the policy falls under an exception in the legislation. For example,mandatory retirement may be allowed if age could be established to constitute a bona fide occupationalrequirement for employees, or if there is a bona fide pension plan that is adopted in good faith by anemployer and not for the purpose of avoiding human rights protections.Labour Relations Legislation – Restrictions on InformationEach province has labour relations legislation that makes it illegal for an employer to refuse to “employ”,or “to discriminate against any person” because of that person’s trade union status.Unfair Competition / Covenants Not to CompeteTrade SecretsUnder the common law, employees must not divulge confidential information or trade secrets that theyacquire during their employment. This does not prevent employees from bringing general knowledge andskills they learned from their previous employer to a new employer. But generally, “confidential”information (defined as information that, if disclosed, could negatively impact the employer’s business thatis not in the public realm) must not be divulged to a new employer. Confidential information may include:marketing strategy; personnel information; standard business practices of the employer; trade secrets(such as manufacturing processes); sales information; commercial contracts; computerized data; andsupplier and customer lists.However, trivial or self-evident matters, or information otherwise available in the public domain isgenerally not confidential information.Covenants Not to CompeteDepending on the particular employment relationship, an employer may restrict former employees frombecoming engaged in competitive employment. Whether a court will uphold a restrictive covenantpreventing competition will be based on an analysis of whether the employee owes a fiduciary duty to theemployer (i.e. has an obligation to act in the employer’s best interests).Fiduciary duties are not generally imposed on employees through implication of the employment contract.However, in some instances employees may be in a fiduciary relationship due to the specific nature of theemployment. Fiduciary employees typically are employees occupying “key” positions or who have accessto sensitive information about the employer’s business that might allow them to compete unfairly with theiremployer following employment. In such cases, an employer may be successful in obtaining injunctiverelief and a new employer will find itself prevented from using this employee’s knowledge as a resource.Non-Solicitation of Employees and CustomersContracts containing non-solicitation clauses are more readily enforceable in Canada than noncompetitionclauses, as they are less restrictive in nature. Such clauses may be subject to a“reasonableness” analysis by a court.Page 59

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaEmployment ContractsEmployment Contracts GenerallyParties to all employment relationships have an employment contract whether written or not. Employmentcontracts can be in writing, oral or implied. The terms of an agreement may provide for matters such asduration and the parties’ obligations arising out of termination.It is advisable, when possible, to enter into a carefully drafted written agreement with employees definingand limiting employee entitlements on termination. Otherwise, termination can result in uncertain andexpensive implications (i.e. the obligation to provide “reasonable notice”). Employment contracts usuallycontain a description of the duties expected of the employee, remuneration and other benefits. Suchcontracts may also contain confidentiality clauses and non-compete provisions.Where notice provisions of an agreement are drafted properly and satisfy minimum statutory obligationsfor termination, the employment contract may prevail notwithstanding what the employee might havebeen entitled to at common law.Courts will usually uphold employment contracts unless the former employee establishes that it wasentered into under duress or that it is so unfair that it is unconscionable. For example, a non-competeclause that prohibits an employee from working in the same field in any Canadian province for anextended period of time after leaving the employer would probably be considered unconscionable,unenforceable and in restraint of trade.Limiting Future LiabilityEmployers must carefully draft employment contracts for clarity, legality, and effectiveness to ensure thata reviewing judge upholds the intent of the parties. Ambiguous termination clauses are not alwayssufficient to rebut the presumption of common law reasonable notice upon termination. As a result,courts have awarded employees damages based on reasonable notice at common law rather than thenotice period specified in the contract.Employers must be careful with the wording used in employment contracts. All employment contracts,materials, and policies that address the terms and conditions of an employee’s employment should bedrafted in clear and unambiguous language. Employment materials should also be brought clearly to theattention of the employee at the time of hire and the employee given time to carefully review them beforeaccepting employment.Provincial StatutesEmployment StandardsEach province in Atlantic Canada has employment standards legislation in place that governs many of theterms of the employment relationship and establishes minimum standards that employers must meet.Although the employment standards legislation covers most provincially regulated employees, certaincategories of workers are exempt from various provisions by regulation.With the exception of entering into a contract that provides a greater benefit to the employee, the partiesare unable to contract out of employment standards legislation and any contract that purports to do so isvoid to that extent. Provincial employment standards legislation establishes requirements affecting thefollowing subject matters, among others: termination protection; minimum wage; overtime pay; vacationentitlements; paid statutory holidays; unpaid leave; and notice requirements.Workers’ CompensationEach province provides for compensation for workers in the event of accidents or occupational illness.Compensation is funded through assessments on the payrolls of employers required to participate in thePage 60

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadasystem. The purpose of the legislation is to promote healthy workplaces and facilitate the recovery andreturn to work of injured workers. The legislation applies to most employers with some exceptions and isa “no-fault” system.Employers are under an obligation to register with the provincial workers’ compensation programs andmay obtain additional information from the following websites:New Brunswick:Prince Edward Island:Nova Scotia:Newfoundland and Labrador:www.whscc.nb.cawww.wcb.pe.cawww.wcb.ns.cawww.whscc.nf.caEach province prohibits any discriminatory or disciplinary action against an employee who has beeninjured at the workplace, who is or may be entitled to workers’ compensation benefits.Statutory obligations require the re-employment of an employee who has been injured or who suffersfrom an occupational disease.In accordance with human rights principles, employers also have a duty to accommodate an injuredemployee to the extent that the accommodation does not cause undue hardship. The employer andemployee must attempt to identify employment at the workplace that is consistent with the employee’sfunctional abilities that will restore the employee’s pre-injury earnings to the extent possible.Occupational Health and SafetyThe purpose of occupational health and safety legislation in each Atlantic Province is to protect the healthand safety of workers in those provinces. Each piece of legislation promotes an internal responsibilitysystem where duties, rights and principles apply to owners, employers, supervisors, employees andsuppliers. Occupational health and safety legislation applies to most employees with the generalexception of employees in federally regulated occupations.Employers in each Atlantic Province have a general duty to maintain a safe workplace and to ensure thatmeasures and procedures prescribed in their respective Occupational Health and Safety Acts arefollowed. Although not exhaustive, the following are some of the general requirements underoccupational health and safety legislation:• protective equipment must be provided to and worn by employees;• employees must receive instruction and supervision with respect to health and safety issues;• a joint health and safety committee (“JOHSC”) must be established and maintained;• the JOHSC must receive assistance and cooperation in carrying out its functions;• hazardous materials in the workplace must be properly labelled, stored and disposed of, andemployees must be instructed about hazards in accordance with the Workplace HazardousMaterials Information System; and• accurate records of the handling, storage, use and disposal of biological, chemical or physicalagents must be maintained.Not all workplaces are required to have a JOHSC. Each Atlantic Canada province requires a JOHSCwhere there are 20 or more employees. Some of these provinces also impose other occupational healthand safety obligations where there are less than 20 employees.Page 61

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaAll employees in workplaces covered by occupational health and safety legislation have the legal right torefuse to perform unsafe work, as long as that employee has a reasonable belief that the work orworkplace is likely to endanger himself or herself, or another employee. When an employee refuses“unsafe” work, the employee must report to his or her employer or supervisor and the claim must beimmediately investigated in the presence of the employee and the committee member who represents theemployee, a health and safety representative, or any individual identified by a trade union or employeeorganization to represent the worker.Employees who exercise their statutory right to refuse to do unsafe work may not be disciplined by theiremployer.In 2004, the Criminal Code of Canada (the “Criminal Code”) was amended to impose criminal liabilitywhere an organization or individual fails to take reasonable steps to prevent workplace accidents. Formore on this issue, please consult the Federal Statutes section that follows. Although the Criminal Codedoes not oust the jurisdiction of provincial occupational health and safety legislation, it is possible thatjoint proceedings may be brought under the Criminal Code and applicable occupational health and safetylegislation in respect of the same event. However, Criminal Code prosecutions will likely be reserved forthe most egregious conduct.Labour RelationsCertificationEach Atlantic Province has a statute that regulates provincial trade union activities generally known aslabour relations or industrial relations legislation. This type of legislation governs both the process bywhich a trade union acquires bargaining rights and subsequent collective bargaining procedures betweentrade unions and employers. Certification of unions may also occur through voluntary recognition in allprovinces with the exception of Prince Edward Island.In determining whether a unit is appropriate for collective bargaining, the relevant labour board (titled the“Labour and Employment Board” in New Brunswick and the “Labour Relations Board” in the other AtlanticProvinces) may include or exclude employees based, for example, on whether the employees aremanagement or not.Statutory “Freezes”Once a labour board is served with an application for certification, an employer is unable to alter wagerates, terms of employment or any other employment privilege. The freeze remains in effect until theunion’s application is either dismissed or certified and notice to bargain is given. If the latter occurs asecond, virtually identical, statutory freeze commences.Unfair Labour PracticesIn New Brunswick and Nova Scotia, where a labour board determines that employee rights have beenviolated to such an extent that it is unlikely that the employee’s true wishes can be ascertained, the labourboard may certify accordingly. Such occurs on the basis of what is termed an “unfair labour practice”.Employers should be aware that they cannot attempt to prevent an employee from becoming a unionmember or exercising other rights under labour relations legislation generally. Examples of unfair labourpractices include:• refusing to employ or continue to employ an individual because of his or her union activities;• imposing conditions in an individual’s contract of employment;• threatening dismissal, imposing a penalty, or intimidation by any other means;• illegal strikes and lockouts or threat of same; andPage 62

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• employer participation in or interference with the formation or administration of a trade union.Strikes/LockoutIn all provinces, strike action is prohibited during the term of an existing collective agreement.DecertificationDecertification is the process by which union members may apply to revoke a union’s representationalrights. Decertification may take place when the labour board is satisfied that the union has lost thesupport of the majority of the employees in a unit. The timeliness for a decertification varies fromprovince to province but is generally dependent on the same timeliness factors involved in a certificationapplication.SuccessorshipWhen an employer sells, leases or otherwise disposes of a business, the union’s rights follow thebusiness. An employer that purchases all or part of a business is bound by the collective agreement as ifit is a party to it and inherits any incumbent unions’ bargaining rights.Federal StatutesThe Canada Labour CodeThe statute governing federally regulated employers is the Canada Labour Code (the “CLC”). The CLCsets out employment standards protections for employees. These standards apply to both the unionizedand non-unionized employee, except where the CLC provides otherwise. The CLC also provides thestatutory mechanism for dealing with industrial relations in federally regulated and unionized workplaces.As well, the CLC legislates occupational health and safety responsibilities on employers and employeesin federally regulated workplaces, whether unionized or non-unionized.The CLC provides that an employer must pay the minimum wage as legislated by the province where theemployee is usually employed; this requirement is generally applicable regardless of occupation, status,or work experience. The CLC provides that the standard hours of work of an employee will not exceedeight hours in a day and 40 hours in a week.When an employee is required to work in excess of these standard hours of work, the employer must payovertime pay at a rate not less than one and a half times the employee’s regular rate of wages. TheCLC’s overtime provisions do not apply in respect of employees who are managers, superintendents,exercise management functions, or who are members of the following professions: architectural, dental,engineering, legal or medical.The CLC also contains provisions regarding leaves of absence, such as paid vacation, paid sick leave,paid holidays, family and other medical leave and pregnancy/parental leave.Human RightsThe Canadian Human Rights Act prohibits workplace discrimination and provides a complaint-drivenenforcement mechanism. An employer is prohibited from refusing to employ or continue to employ anindividual or to differentiate adversely in relation to an employee on a prohibited ground of discrimination.The prohibited grounds of discrimination include: race, national or ethnic origin, colour, religion, age, sex,sexual orientation, marital status, family status, disability and conviction for which a pardon has beengranted. Where the ground of discrimination is pregnancy or child birth, the discrimination is deemed tobe on the ground of sex.It is not a discriminatory practice if an employer’s refusal, exclusion, expulsion, suspension, limitation,specification or preference in relation to any employment is based on a bona fide occupationalPage 63

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadarequirement. For a practice to be considered to be based on a bona fide occupational requirement, theemployer must establish that accommodation of the needs of the individual affected would impose unduehardship on the employer who would have to accommodate those needs, considering health, safety, andcost. Other circumstances where there will not be discriminatory practice are:• the employment of an individual is refused or terminated because that individual has not reachedthe minimum age, or has reached the maximum age, which applies to that employment by law;• an individual’s employment is terminated because that individual has reached the normal age ofretirement for employees working in positions similar to the position of that individual;• the terms and conditions of any pension fund or plan established by an employer provide for thecompulsory vesting or locking in of pension contributions at a fixed or determinable age;• an individual is discriminated against on a prohibited ground of discrimination that is prescribedby guidelines issued by the Canadian Human Rights Commission to be reasonable;• an employer grants a female employee special leave or benefits in connection with pregnancy orchild birth or grants employees special leave or benefits to assist them in the care of theirchildren; and• where an individual is denied any goods, services, facilities or accommodation or access theretoor occupancy of any commercial premises or residential accommodation or is a victim of anyadverse differentiation, and there is bona fide justification for that denial or differentiation.The Act also prohibits an employer from using or circulating any form of application for employment orpublishing any advertisement in connection with employment or perspective employment that expressesor implies any limitation, specification or preference based on a prohibited ground of discrimination.The Canadian Human Rights Act also prohibits an employer from establishing or pursuing a policy orpractice or entering into an agreement affecting recruitment, referral, hiring, promotion, training,apprenticeship, transfer or any other matter relating to employment or prospective employment, thatdeprives an individual of any employment opportunities on a prohibited ground of discrimination.Occupational Health and SafetyThe obligations on a federally regulated employer to ensure the health and safety of employees and thepublic are set out in Part II of the CLC. The duty imposed on employers is to “ensure that the health andsafety at work of every person employed by the employer is protected.” A breach of this duty triggers astrict liability offence. A strict liability offence is proved upon establishing beyond a reasonable doubt thatthe prohibited act was committed by the accused. There is no need for the Crown to prove that theaccused intended to commit the act.Once the strict liability offence has been proven, the onus shifts to the accused to show on a balance ofprobabilities that it showed due diligence or took reasonable care. If the accused can prove that due careand diligence was taken to avoid the contravention, the accused will be acquitted of the offence.“Due care and diligence” means that the employer did everything that a reasonable person should do toprevent the incident. Obviously the employer must demonstrate that the due diligence components werein place before the incident.The following persons are guilty of an offence under Part II of the CLC, if they direct, authorize, assent to,acquiesce in or participate in the commission of any of the offences under Part II:• any officer, director, agent or mandatory of the corporation;• any senior official in the department or portion of the public service; orPage 64

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• any other person exercising managerial or supervisory functions in that corporation, departmentor portion of the public service.Any person who contravenes a provision of Part II may be punished by a fine of up to $1-million and/ortwo years in prison.Criminal Code ProvisionsThe Criminal Code was recently revised to include new liabilities for corporations for failure to ensure andmaintain certain occupational health and safety duties.The Criminal Code establishes a legal duty to take “reasonable steps” and applies to both individuals andorganizations. The occupational health and safety legal duty is imposed on “everyone” who undertakes,or has the authority, to direct how another person does work or performs a task. The legal duty is thatsuch persons must take reasonable steps to prevent bodily harm to the person, or any other person, towhom that work or task is directed.Individual ObligationsOccupational health and safety criminal negligence for individuals is established where the individual, inundertaking to direct how another person does work:• contravenes his or her duty to take “reasonable steps” to prevent bodily harm, and• shows wanton or reckless disregard for the lives or safety of others.Organization ObligationsThe test for determining criminal negligence for organizations applies the test for criminal negligence ofindividuals to the actions of the corporation’s employees and then adds a further test to determine if asenior officer should have taken reasonable steps to prevent those actions (i.e. it is necessary todetermine if the senior officer responsible, or senior officers collectively, departed markedly from thestandard of care that could be expected.)Due DiligenceThe health and safety obligations in the Criminal Code constitute criminal offences and as such carry withthem the requirement that each element of the offence be proven beyond a reasonable doubt. Unliketraditional occupational health and safety violations which are strict liability offences (requiring only thatthe unlawful act be proven and allowing for the defence of due diligence), the new occupational healthand safety negligence offence is not directly impacted by traditional due diligence defence. However, theconcept of due diligence is clearly subsumed in the standards as well as in the “party to” offencesprovisions. Considering the subtle reliance on due diligence like principles contained in the provisions, itwould appear that the due diligence standard may in fact apply by analogy.Due diligence is defined as whether the organization or individual can establish it took all reasonable careby:• establishing proper systems to prevent the commission of the offence; and• taking reasonable steps to ensure effective operation of the systems.The recent Criminal Code amendments apply to every person who directs how others do work or hasauthority to direct how work is done. This may include walking bosses to senior executives. Theamendments provide that any “organization”, “representative”, or “senior officer” has a legal duty.Page 65

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaPenalties for criminal negligence for an organization include a discretionary fine to a maximum of$100,000.Penalties for criminal negligence for individuals include imprisonment for possible terms of four years, notexceeding 10 years, or life, depending on the circumstances of the offence.Labour RelationsThe relations between federally regulated employers and their employees are regulated by Part I of theCLC. Every employee is entitled to join the trade union of his/her choice and participate in its lawfulactivities, just as every employer is entitled to join the employers’ organization of its choice and participatein its lawful activities.CertificationA trade union seeking to be certified as a bargaining agent for a unit appropriate for collective bargainingmay make an application to the Canada Industrial Relations Board (the “CIRB”). Where a union makesan application for certification, an employer is prohibited from altering the rates of pay or any other term orcondition of employment, or any right or privilege of employees unless the union withdraws theapplication or 30 days have elapsed since the CIRB certified the unit.To decide whether a unit should be certified to represent the unit applied for, the CIRB will determine theunit that is appropriate for collective bargaining. In determining the appropriate unit, the CIRB can includeor exclude employees to or from the unit proposed by the union. The CIRB may also request a vote ofemployees to determine if the employees in a particular unit wish to be represented by the applyingunion. Unless 35% of the employees eligible to vote, and who voted, are in favour of the unit, theapplication will be void.A certification may be revoked where an employee representing the majority of employees in the unit filesan application for an order revoking the certification of the trade union.SuccessorshipWhere there is a sale of a business, the trade union that is the bargaining agent for the employeeemployed in that business continues to be their bargaining agent, and the person to whom the business issold is bound by the collective agreement applicable to those employees. The person who buys thebusiness also becomes party to any proceedings in progress under the CLC.Notice to BargainBoth the employer and bargaining agent may give notice to the opposite party indicating their desire tobargain a collective agreement (whether new or existing but expired). Once such notice has been given,the employer is prohibited from altering rates of pay or any other terms and conditions of employment orany right or privilege of employees in the unit with whom it is bargaining, unless the bargaining agentconsents.Strikes/LockoutsStrikes and lockouts are prohibited under the CLC. A union considering strike action must give theemployer and the federal Minister of Labour 72 hours’ notice of the commencement of the strike.Similarly, an employer considering locking out employees must give the union and the Minister of Labour72 hours’ notice of the commencement of the lockout.A union cannot declare or authorise a strike unless it has conducted a strike vote, by secret ballot, andreceived the approval of the majority of the employees of the unit who voted.Page 66

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaDuring a strike, the union must continue to supply services, operation of facilities or production of goodsto the extent necessary to prevent an immediate and serious danger to the safety or health of the public.Unfair Labour PracticesEmployers are prohibited from engaging in a number of unfair labour practices. An employer cannot:• participate in or interfere with the formation or administration of a trade union or therepresentation of employees by a trade union;• contribute financial or other support to a trade union;• refuse to employ or to continue to employ or suspend, transfer, lay off or otherwise discriminateagainst any person with respect to employment, pay or any other term or condition ofemployment or intimidate, threaten or otherwise discipline any person, because the person• is or proposes to become, or seeks to induce any other person to become, a member,officer or representative of a trade union or participates in the promotion, formation oradministration of a trade union,• has been expelled or suspended from membership in a trade union for a reason otherthan a failure to pay the periodic dues, assessments and initiation fees uniformly requiredto be paid by all members of the trade union as a condition of acquiring or retainingmembership in the trade union,• has testified or otherwise participated or may testify or otherwise participate in aproceeding under Part I of the CLC,• has made or is about to make a disclosure that the person may be required to make in aproceeding under Part I of the CLC,• has made an application or filed a complaint under Part I of the CLC, or• has participated in a strike that is not prohibited by Part I or exercised any right underPart I;• impose any condition in a contract of employment that restrains, or has the effect of restraining,an employee from exercising any right conferred on them by Part I of the CLC;• suspend, discharge or impose any financial or other penalty on an employee, or take any otherdisciplinary action against an employee, by reason of their refusal to perform all or some of theduties and responsibilities of another employee who is participating in a strike or subject to alockout that is not prohibited by Part I of the CLC; or• deny to any employee any pension rights or benefits to which the employee would be entitled butfor• the cessation of work by the employee as the result of a lockout or strike that is notprohibited by Part I, or• the dismissal of the employee contrary to Part I.Similarly, unions face unfair labour practice complaints. Unions cannot:• seek to compel an employer to bargain collectively with the trade union if the trade union is notthe bargaining agent for a bargaining unit that includes employees of the employer;Page 67

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• bargain collectively for the purpose of entering into a collective agreement or enter into acollective agreement with an employer in respect of a bargaining unit, if that trade union or personknows or, in the opinion of the CIRB, ought to know that another trade union is the bargainingagent for that bargaining unit;• participate in or interfere with the formation or administration of an employers' organization;• except with the consent of the employer of an employee, attempt, at an employee's place ofemployment during the working hours of the employee, to persuade the employee to become, torefrain from becoming or to cease to be a member of a trade union;• require an employer to terminate the employment of an employee because the employee hasbeen expelled or suspended from membership in the trade union for a reason other than a failureto pay the periodic dues, assessments and initiation fees uniformly required to be paid by allmembers of the trade union as a condition of acquiring or retaining membership in the tradeunion;• expel or suspend an employee from membership in the trade union or deny membership in thetrade union to an employee by applying to the employee in a discriminatory manner themembership rules of the trade union;• take disciplinary action against or impose any form of penalty on an employee by applying to thatemployee in a discriminatory manner the standards of discipline of the trade union;• expel or suspend an employee from membership in the trade union or take disciplinary actionagainst or impose any form of penalty on an employee by reason of that employee havingrefused to perform an act that is contrary to Part I; or• discriminate against a person with respect to employment, a term or condition of employment ormembership in a trade union, or intimidate or coerce a person or impose a financial or otherpenalty on a person, because that person• has testified or otherwise participated or may testify or otherwise participate in aproceeding under Part I,• has made or is about to make a disclosure that the person may be required to make in aproceeding under Part I, or• has made an application or filed a complaint under Part I.Page 68

CHAPTER 13ENVIRONMENTAL LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 13 – ENVIRONMENTAL LAWRegulatory FrameworkBusinesses in Atlantic Canada should be familiar with various environmental laws and policies which mayapply to their business activities, especially those involving purchasing or leasing real property in AtlanticCanada, industrial development or the production, movement or disposal of dangerous goods, toxicsubstances or wastes in and around the region.Environmental matters in Atlantic Canada are governed by statute and common law. All four AtlanticProvinces have their own sets of statutes and regulations which address environmental matters withineach province. The federal government also legislates with regard to the environment. In addition, somemunicipalities have enacted by-laws in relation to the environment through authority delegated to them bythe provinces. An environmental matter therefore may be governed by federal, provincial, and/ormunicipal law depending on the circumstances. This generally reflects the constitutional division ofpowers in Canada.The Constitution Act, 1867, does not assign exclusive jurisdiction over the environment to the federalgovernment or the provincial governments. Rather, the power to legislate with regard to the environmentfalls under various heads of constitutional authority. Generally, when an environmental matter relates toa matter of federal jurisdiction or is of national or international concern and a compelling case exists for anational response, the federal government will have legislative authority. Where a matter is of localconcern, the provinces are more likely to be the regulating authority.Federal LawFederal Environmental LegislationCanadian Environmental Protection Act, 1999 (“CEPA”)CEPA is administered by the federal Minister of Environment and the Environment Canada department.CEPA’s overall purpose is to set and enforce environmental quality standards. CEPA contains provisionswhich regulate all aspects of the environment under federal jurisdiction, including air pollution, oceandumping, the regulation of toxic substances and the movement of hazardous waste. CEPA also containsprovisions which apply specifically to federal departments, agencies, crown corporations, works,undertakings and lands. The Minister of Environment has authority to appoint inspectors for the purposeof administering and enforcing CEPA.Inspectors under CEPA have the power to inspect any place where there is a substance or activityregulated by the act. Where the owner or person in control takes no response measure, inspectors areauthorized to take any actions required by CEPA to control the release of a regulated substance.Authorized actions include entering onto private property in order to take necessary measures, but do notinclude entering a private dwelling unless authorized by a warrant. In some circumstances, however,there is authority for a warrantless search. Seized goods can be detained under specific provisions ofCEPA.CEPA also provides for the issuance of environmental protection orders and includes penalties that canbe imposed for a contravention of the act or its regulations. Maximum penalties are a fine of up to $1-million per day and/or five years’ imprisonment.Fisheries ActThe Fisheries Act is administered by the federal Department of Fisheries and Oceans. The purpose ofthis legislation is the protection of Canada’s fisheries and, by necessary extension, it applies to protectfish habitat. It applies to all waters in Canadian fishing zones, all waters in the territorial sea of Canadaand all internal waters of Canada. Although this legislation mainly regulates the harvesting of commercialPage 69

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadafisheries in Canada’s territorial and inland seas, it has also been used to protect recreational andenvironmentally sensitive fish stocks as well as habitat for fish and other organisms.Transportation of Dangerous Goods Act, 1992 (“TDGA”)The TDGA is administered by Transport Canada. It applies to all modes of transportation of dangerousgoods within federal authority. This includes inter-provincial transport and goods carried by ship oraircraft. The TDGA prohibits any person from handling, offering for transport or transporting anydangerous goods unless applicable safety requirements are met. It establishes specific safetyrequirements for the packaging, labelling and documentation of dangerous goods, as well as for thenotification and reporting of dangerous goods and the training of employees who handle dangerousgoods.Other Federal Statutes• Arctic Waters Pollution Prevention Act and accompanying regulations;• Canada-Newfoundland Atlantic Accord Implementation Act and accompanying regulations;• Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act andaccompanying regulations;• Canada Shipping Act, and accompanying regulations;• Canada Oil and Gas Operations Act and accompanying regulations;• Migratory Birds Convention Act, 1994 and accompanying regulations;• Navigable Waters Protection Act;• Species at Risk Act and accompanying regulations; and• legislation pertaining to public harbours and port authorities.Federal Areas of RegulationThe primary areas of federal regulation which businesses should be aware of include:• air, water and land pollution;• toxic substances; and• transportation of dangerous goods and hazardous wastes.Air PollutionThe federal government has enacted numerous air pollution regulations under CEPA to limit theconcentration of a variety of industrial emissions, including: (1) asbestos emissions from asbestos minesand mills; (2) lead emissions from secondary lead smelters; (3) mercury from chlor-alkali mercury plants;and (4) vinyl chloride from vinyl chloride and polyvinyl chloride plants.Water PollutionAlthough CEPA regulates waste disposal, dumping in Canada’s territorial seas, and international waterpollution, the federal government’s primary regulatory power over water pollution is pursuant to theFisheries Act.Page 70

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaThe Fisheries Act prohibits the deposit of deleterious substances in any waters frequented by fish orareas constituting a fish habitat. The term “deleterious substance” means any substance that woulddegrade or alter the quality of the water and render it harmful to fish or fish habitat.If an activity will cause harmful alteration to a fish habitat, or involves the discharge of a deleterioussubstance into waters frequented by fish, approval must first be obtained from the federal Department ofFisheries and Oceans.Regulations under the Fisheries Act identify certain substances as being deleterious and set outpermitted levels of effluent discharges for industrial facilities such as petroleum refineries, pulp and papermills, meat and poultry processing plants and mines. Industries located on watercourses must be awareof the impact their activities may have on fish and fish habitat.Active depositing and a lack of interference or a failure to prevent deposits constitute an offence underthe Fisheries Act. Penalties can be significant including fines of up to $100,000 per day.Under the Navigable Waters Protection Act a permit is required before the infill of navigable water or theconstruction of a structure in navigable water. The term “navigable water” is construed quite broadly andwould generally include water that is sufficient to float a small boat or canoe.Land PollutionThe pollution or contamination of land is generally dealt with by provincial authorities. The federalgovernment is, however, responsible for all federally owned lands. In addition, the federal governmentworks in conjunction with the provincial governments in developing national soil and groundwater cleanupguidelines.Toxic SubstancesAnother aspect of the federal government’s control over environmental matters is its regulation of toxicsubstances under CEPA.A “toxic substance” is a substance that in a particular quantity or concentration has a long-term harmfuleffect on the environment, or is a danger to human health.Under CEPA, the federal government maintains a Toxic Substances List which sets out all substancesdesignated as toxic. Once a substance is added to the list the government may make regulations whichregulate every aspect of the substance including restricting or banning its use. These conditions includespecifying acceptable levels of concentrations that may be released or conditions prescribing the use,handling, manufacture, testing and transportation of the substance.The federal government also maintains a Priority Substances List and a Domestic Substances List underCEPA. The Priority Substances List contains those substances deemed to be, or to have the potential ofbecoming, toxic. These substances are subject to assessment and investigation in order to determine ifthey are toxic and hence should be added to the Toxic Substances List.The Domestic Substances List identifies chemical and biotechnical substances currently used in Canada.Before new substances (i.e. substances not included on the Domestic Substances List) can be importedinto Canada, manufacturers and importers must notify the federal government and provide detailedinformation concerning the nature of the substance, including its intended use, safety data and hazardidentification. With that in mind, businesses intending to introduce a new substance into the Canadianmarketplace should provide for sufficient lead time.In the event of an unlawful release of a toxic substance, CEPA requires persons and organizations toimmediately report the release and to take all reasonable emergency measures to contain the spill.These obligations are triggered when there is a release or there appears to be a reasonable likelihood ofa release of the substance into the environment.Page 71

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaTransportation of Dangerous Goods and Hazardous WastesThe federal government and the provincial governments have basically harmonized their approach to thetransportation of dangerous goods. Generally, provincial standards that govern the transportation ofdangerous goods within the province incorporate the federal TDGA by reference. That being said,businesses involved in the transport of dangerous goods should be aware of both federal and provinciallaws.When dangerous goods are transported within Canada the federal TDGA applies. The TDGA does notexpressly define “dangerous goods” but classifies substances into various classes of compounds listed inits accompanying schedules. Any substance listed in the schedules is designated as being dangerous.Dangerous goods typically include explosives, compressed gases, poisons, flammable and combustibleliquids and solids, nuclear substances, oxidizing substances, toxic and infectious substances, radioactivematerials, corrosives and various miscellaneous products provided for in the regulations.The key requirement under the TDGA is that prescribed safety standards be complied with whentransporting dangerous goods.For the transportation of hazardous wastes, special shipping requirements under CEPA apply. Aprescribed “waste manifest” must be completed by the shipper, the carrier and the receiver. Wastemanifests are also required under provincial law and copies of the manifest must be sent to theappropriate provincial department for both the place of origin and destination. Where the place of originor destination is outside of Canada, a copy of the manifest must be sent to the federal Ministry ofEnvironment.Permits are required for the import, export and transport of hazardous waste. Hazardous waste includesdangerous goods and any substance on the “List of Hazardous Wastes”. All importers and exporters ofhazardous waste must provide notice of the waste shipment to the relevant Canadian authorities.EnforcementCurrent StatusThe federal government utilizes various means of ensuring compliance with environmental legislationsuch as establishing reporting requirements, authorizing inspections and tests, issuing control orders,clean-up orders, remedial orders or stop orders, and in some cases prosecution under federal statute.Most environmental offences are strict liability offences meaning the prosecution only has to show thatthe impugned act was committed regardless of intent. The defendant is then entitled to raise a “duediligence” defence, through which liability may be avoided if it can be shown that reasonable care wastaken under the circumstances.Penalties for offences under federal environmental legislation can be substantial, with seriouscontraventions attracting jail terms of up to three years and fines of up to $1-million per offence. Wherean offence is committed or continued on more than one day, the person who committed the offence is inmany cases liable to be convicted for a separate offence for each day on which it was committed orcontinued.Offenders who are found to have shown wanton or reckless disregard for the lives or safety of otherpersons thereby causing death or bodily harm are subject to prosecution and punishment under sections220 or 221 of the Criminal Code. The maximum penalty for causing death by criminal negligence is lifeimprisonment, while the maximum penalty for causing bodily harm by criminal negligence is 10 yearsimprisonment.Page 72

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaImpending Legislative ReformsOn May 13, 2009 Canada’s Parliament passed Bill C-16, which is the Environmental Enforcement Act.While this act had not been proclaimed into force at the time of writing, it is important to note thelegislative enhancements it contains. These include:• amending the penalty provisions of certain statutes by establishing distinct ranges of fines fordifferent offences, by creating minimum fines for the most serious offences, by increasingmaximum fines, by specifying ranges of fines for individuals, other persons, small revenuecorporations and ships of different sizes and by doubling the fine amounts for second andsubsequent offenders;• amending the sentencing provisions of certain statutes by adding a purpose clause, by specifyingaggravating factors that, if associated with an offence, must contribute to higher fines, byrequiring courts to add profits gained or benefits realized from the commission of an offence tofine amounts, by requiring courts to order corporate offenders to disclose details of convictions totheir shareholders and by expanding the power of the courts to make additional orders havingregard to the nature of the offence and the circumstances surrounding its commission;• adding to certain statutes a requirement that details of convictions of corporations be madeavailable to the public and that all fines collected be credited to the Environmental Damages Fundand be available for environmental projects or the administration of that Fund; and• creating the Environmental Violations Administrative Monetary Penalties Act which establishes anadministrative monetary penalty scheme applicable to certain statutes.Environmental AssessmentsBusinesses should be aware that both the federal and provincial levels of government have the power torequire assessments concerning the environmental impact of new physical undertakings and alterationsto existing undertakings. Environmental assessments may be triggered by major undertakings, such ashydro-electric dams, mines and waste management facilities, or smaller matters such as streamcrossings.At the federal level, Environment Canada and the Canadian Environmental Assessment Agencyadminister the Canadian Environmental Assessment Act. This legislation requires certain federalauthorities to assess the environmental impact of federal projects and private projects that receive federalfunding, that take place on federal lands or that require certain federal permits.When an environmental assessment determines that a project is likely to cause adverse environmentaleffects, approval of the project will be delayed and public hearings may be required.Liability of Directors and OfficersVarious federal statutes impose personal liability on directors and officers of corporations for failing totake reasonable care to ensure that the corporation does not cause or permit harm to the environment.Typically, directors and officers can avoid personal liability by establishing a defence of due diligence.The threshold for establishing due diligence differs for any given offence. One way of establishing a duediligence defence is by demonstrating that the company had an environmental management program inplace and was adhering to it at the time of the offence.Developing an environmental management program often entails implementing corporate policies andreporting structures, establishing training programs and conducting regular environmental audits. Manycorporations in Canada have also established work committees to oversee their environmentalmanagement system.Page 73

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaProvincial LawPrincipal Environmental LegislationAll four Atlantic Provinces have legislated extensively in the area of environmental protection. Themanner in which this legislation has been created varies from province to province. Some provinces havecreated a single act intended to govern a wide range of environmental issues. See, for example, PrinceEdward Island’s Environmental Protection Act. Other provinces have created a variety of narrower actsintended, when taken together, to encompass a broad range of environmental issues. New Brunswick,for example, has three principal pieces of environmental legislation, being the Clean Environment Act, theClean Air Act, and the Clean Water Act.While the form of provincial legislation in this field varies quite significantly, the substance of thelegislation has many common features. Whether through a single statute or multiple statutes, the AtlanticCanadian provinces have legislated in common over a wide variety of environmental issues relating toland, water and air pollution.The term “environment”, as used in provincial environmental legislation, is defined very broadly toencompass land, water and air. The term “pollution”, however, is not defined. Instead, the focus ofprovincial environmental laws is on the regulation of the emission of a broad range of “contaminants”which impair or damage the environment, including (but not limited to) those which adversely effecthuman health.Provincial legislation imposes substantial reporting obligations on the owners of contaminants and onpersons causing or permitting the discharge of contaminants into the environment. Where accidentalspills or discharges occur, the person or people in control must notify the appropriate environmentalauthorities immediately and do everything practicable to clean up the area and restore the naturalenvironment.Environmental inspectors are generally provided with extensive investigatory powers, including the rightto enter property and to seize objects or substances they believe will provide evidence of an offence.Normally, a warrant is required for such actions. However, in certain exigent circumstances, propertymay be searched and goods seized without a warrant.Ministerial orders are a common means of enforcement under provincial environmental legislation.Ministers have very broad powers to make orders in relation to actual or potential environmentalcontamination. These powers typically include the right to order people to allow inspections, testing andsampling of their lands; the right to order the cessation of activities which cause or may causeenvironmental contamination; the right to require the cleaning, repair and restoration of areas affected bycontamination; and the right to require that specific actions be taken to prevent danger to human life orhealth or damage to property. Ministerial orders run with the lands against which the orders apply to andare binding against successors and assigns.It is noteworthy that under provincial legislation, the responsibility for clean up of contaminated propertyextends beyond the persons who caused the contamination. For instance, the current owner ofcontaminated property may be ordered by the Minister to clean up the property even though the owner isnot at fault for the contamination and may not even have owned the property when the contaminationoccurred. For this reason, it is imperative for prospective purchasers to conduct appropriate due diligenceinvestigations before acquiring property and to have appropriate protections to enable this to occur builtinto any agreements for the purchase of property. In New Brunswick, recent amendments to the CleanEnvironment Act have expanded the scope of the responsibility for clean up of a contaminated propertyeven further to now include the heirs, successors, executors, administrators and assigns of the person towhom an order is directed.Ministers also have the power to prosecute a person or corporation or to seek injunctive relief with regardto environmental offences. Liability for offences can be very substantial, with the most seriouscontraventions attracting jail terms of up to two years and fines of up to $1-million per offence. Also, eachPage 74

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadaday that an offence continues generally constitutes a separate offence. Directors and officers ofcompanies can be charged with environmental offences if they authorize, direct or otherwise participate inthe commission of the offence.Some of the provinces have enacted whistle blower protection, which provides that employers may notdismiss, discipline, penalize or intimidate any employees who report environmental offences by theiremployers. As a balance to ensure that disgruntled employees do not misuse the provision, it is anoffence to intentionally provide false or misleading information.The provinces have also established numerous regulations under their primary environmental laws. Thefocus of these regulations is the management of environmental concerns identified in the statutes,including the following:Air Pollution• Regulation of airborne emissions• Ozone layer protections• Permit requirements for the operation of fuel burning equipment, incinerators andother industrial sourcesWater Pollution• Water quality testing• Water well construction• Drinking water guidelines• Watercourse alteration• Beach and coastline preservation• Watershed protectionLand Pollution• Solid waste disposal• Hazardous waste disposal (e.g. used-oil, lead-acid batteries)• Underground storage tanks (e.g. petroleum tanks)A significant feature of environmental legislation common to all four Atlantic Provinces is theestablishment of an environmental assessment process, under which certain proposed undertakings mustbe examined and evaluated to determine their environmental impacts. Assessments may also berequired when undertakings are modified, extended or abandoned. Undertakings are typically definedvery broadly to encompass any activity, project, structure, work or program which may result in asignificant environmental impact or effect. All undertakings must be registered with the appropriateminister for the purpose of determining whether or not an environmental assessment is required inrelation to the undertaking. An undertaking cannot be carried on until either (a) the minister determinesthat an environmental assessment is not required, or (b) following the completion of an environmentalassessment, approval is granted for the carrying out of the undertaking. The stages of an environmentalassessment process may include: registration, examination, focus report, environmental assessmentreport, public hearing, review and recommendations, and a final decision by the minister.Page 75

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaEnvironmental legislation also identifies a wide range of activities for which ministerial or departmentalapprovals are necessary. Such activities include the use of large quantities of ground water, certainemissions into the environment, rock quarries and crushing, mining operations, alteration of wetlands andwatercourses, removal of material from beaches, power plants and wind farms, just by way of example.Additional Environmental LegislationThe provinces have also passed many other pieces of legislation which deal with narrower environmentalissues. For example, all four Atlantic Provinces have passed specific legislation dealing with the intraprovincialtransportation of dangerous goods. These acts complement, and generally adopt, the safetystandards, packaging and labelling requirements set out in the federal Transportation of DangerousGoods Act, 1992 which applies to the inter-provincial transportation of dangerous goods. Other examplesof related environmental legislation passed by some or all of the Atlantic Provinces include the following:• Oil and gas legislation, which regulates activities relating to the exploration and exploitation ofpetroleum and natural gas, and which imposes measures aimed at preventing spills or leakagesof such substances into the environment;• Pesticides control legislation, which regulates the use, storage and handling of pesticides;• Emergency measures legislation, which provides for the coordination of emergency operationswhere a disaster occurs that may affect the environment or human health, safety or welfare;• Endangered species legislation, which attempts to prevent any provincial species from becomingextinct as a consequence of human activities;• Wildlife conservation legislation, which seeks to maintain the diversity of provincial speciesthrough forest management and the regulation of hunting and fishing;• Legislation protecting wetlands and watercourses and restricting activity in mandated bufferzones around wetlands and watercourses;• Legislation requiring that waste be source-separated into compostables, recyclables and wastematerials; and• Delegated authority to municipalities to enact by-laws pertaining to diverse matters relating to theenvironment such as the use of pesticides, effluent quality for discharge into municipal sewers,topsoil removal and grade alteration, development adjacent to environmentally sensitive areassuch as watercourses and wetlands, and prohibition of nuisances from smoke, dust, odours andthe like.Page 76

CHAPTER 14INSOLVENCY LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 14 – INSOLVENCY LAWBankruptcy and insolvency are matters of federal jurisdiction and the affairs of bankrupt or insolventbusinesses are, principally, governed by the following federal statutes: the Bankruptcy and Insolvency Act(“BIA”), the Companies’ Creditors Arrangement Act (“CCAA”) and, to a lesser extent, the Winding-Upand Restructuring Act (“WURA”).The BIA provides a legislative framework for the liquidation of the assets of an insolvent individual,corporation or partnership and for the distribution of the proceeds in a fair and orderly manner among thecreditors. It provides for the appointment of a trustee to take charge of the assets, sell them anddistribute the proceeds. In addition, the BIA provides ways for insolvent businesses or consumer debtorsto avoid bankruptcy by negotiating arrangements with their creditors for the compromise of their debtsand the reorganization of their financial affairs.The CCAA provides a legislative framework for the reorganization of insolvent corporate debtors withdebts exceeding $5-million. The CCAA enables an insolvent corporation to seek a court order staying itscreditors from taking action against it while it negotiates an arrangement with them for the rescheduling orcompromise of its debts.The WURA provides an alternative framework to the BIA for the liquidation and distribution of an insolventcorporation's assets among its creditors. The WURA is the only legislative vehicle available for theliquidation of major financial institutions. The WURA also applies to corporations incorporated underfederal legislation or under legislation of the Atlantic Provinces whose incorporation and affairs aresubject to federal authority. The WURA also applies to a wide range of solvent companies, although theCanada Business Corporations Act excludes its application to corporations incorporated thereunder. Forsome solvent companies, including companies incorporated under the Canada Corporations Act, theWURA is the only available winding-up vehicle.Under these three statutes, there are two options available for an insolvent business: reorganization orliquidation.Reorganization ProceedingsCanada has two regimes for reorganizing insolvent businesses: the CCAA and Part III of the BIA (itshould be noted that, although the WURA does have a limited reorganization regime, it rarely hasapplication). The regimes under the BIA and the CCAA provide two distinct processes for reorganizationand debtor financing, each of which currently have quite different rules.BIA ReorganizationReorganization under the BIA takes place in the form of a proposal. The proposal is a contract betweenthe debtor and the creditors which is approved by the court and is by statute binding on all relevantcreditors. Proposals allow for a restructuring of debts so that the claims of creditors can be satisfiedwithout the debtor proceeding to a liquidation of assets.Proposals may be brought by an insolvent person, a bankrupt, a trustee of a bankrupt’s estate, aliquidator of an insolvent person’s estate, or a receiver of an insolvent person. Once the debtor files aNotice of Intention to make a proposal, a stay prevents both secured and unsecured creditors fromcommencing or continuing proceedings against the insolvent person. Therefore, the debtor remains inpossession and control of its business and assets although a proposal trustee monitors the reorganizationand files reports with the Office of the Superintendent of Bankruptcy Canada.While the BIA requires a proposal to contain certain terms (such as payment of preferred claims in priorityto claims of ordinary creditors and payment of all proper fees and expenses of the trustee), it does not setout specific criteria for the proposal. However, a successful proposal must be reasonable and requiresapproval by a majority in number and by a two-thirds majority in dollar value of claims for each class ofPage 77

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadacreditors. If a class of secured creditors does not vote in favour of the proposal, then it is not binding onthat class of secured creditors. If a class of unsecured creditors or the court rejects the proposal, then thedebtor is deemed to have made an assignment into bankruptcy.CCAA ReorganizationWhile the BIA is available to all businesses, the CCAA is limited to corporations with over $5-million indebt. Where a corporation has the requisite $5-million in debt, the decision about which statute thecorporation will reorganize under is usually made by the debtor.The existence of the two acts is a result of historical circumstances. In 1923, BIA reorganizations werelimited to debtors who were actually bankrupt, not just insolvent. During the 1930s, the CCAA wasintroduced as a tool for businesses that were insolvent but may not have been technically bankrupt.Since that time, amendments have made BIA reorganizations more accessible, while modestly restrictingaccess to the CCAA. BIA reorganizations are available to any corporation and are more structured,which leads to a greater certainty of outcome. CCAA reorganizations are less structured and have moreflexible terms and are, therefore, less certain in their outcome. The CCAA was rarely used until the mid-1980s, at which time various creative applications increased its popularity.In a CCAA reorganization, the debtor usually begins by making an application to the court for an ordergranting a stay of proceedings against the debtor. If the court accepts the application, it will appoint amonitor. The monitor is required to file reports with the court on the state of the debtor’s finances. Thedebtor continues in possession of its assets throughout the restructuring period, subject to any restrictionsthat the court may impose with respect to use of funds or specific assets. The plan of compromise orarrangement must be approved by a majority of the creditors in each class of creditors and by a twothirdsmajority in dollar value of claims for each class of creditors as well as by the court. Unlike underthe BIA, failure to have a proposal accepted does not result in the automatic bankruptcy of the debtor.In a CCAA reorganization, most decisions are made or approved by the courts, whereas in a BIAreorganization the court is involved only in major decisions and in approving a proposal that has alreadybeen approved by the creditors. The CCAA has minimal procedural requirements and, therefore, courtshave exercised a great deal of discretion in proceedings under it.Debtor FinancingHistorically, a significant factor in making the decision whether to reorganize under the BIA or the CCAAmay be the debtor’s access to financing under each act.Although amendments are pending as of the time of writing (discussed further below), the BIA containsno specific measures to encourage or require existing creditors to continue lending or to encourage newlenders to start lending nor does the BIA authorize granting priority to security for new lending overexisting security. While the BIA does intervene in credit markets to prevent the cancellation of loancontracts for the sole reason that the debtor is insolvent or has started reorganization proceedings, it alsoexplicitly states that creditors need not advance further credit. Amendments to the BIA will, once in force,confirm the availability of interim financing during proposal proceedings.The CCAA has even fewer provisions relating to debtor financing than does the BIA. Like the BIA, itprotects creditors against court orders requiring that new trade credit or cash financing be extended to areorganizing debtor. However, the CCAA gives the courts wide discretion to intervene in credit markets toassist debtors in obtaining financing. The courts have interpreted the CCAA as empowering them togrant priority to new financing even over claims of existing secured creditors and in the face of creditoropposition. The support for debtor financing in CCAA cases is primarily a judicial development groundedlargely on the courts’ exercise of their inherent jurisdiction. Starting from concepts of receivership law, thecourts have developed principles under which they may approve super-priority financing. Proposedamendments to the CCAA will confirm the availability of interim financing (or “Debtor-in-Possession” or“DIP” financing) and codify the existing jurisprudence granting super-priority financing in thesecircumstances.Page 78

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaLiquidation ProceedingsAs stated above, the BIA provides the legislative framework for the liquidation of the assets of anindividual, corporation or partnership. Both the BIA and the WURA provide for liquidation of the assets ofinsolvent corporations. Although there is considerable overlap between the WURA and the BIA,liquidations under the BIA are by far the most common.BIA LiquidationAn insolvent individual, corporation or partnership may be assigned in bankruptcy in one of three ways:• Voluntary Assignment: An insolvent individual, corporation or partnership who resides, carries onbusiness or owns property in Canada, is indebted to creditors for at least $1,000 and is insolventon a balance sheet or has ceased to meet liabilities as they fall due may make a voluntaryassignment into bankruptcy.• Deemed Assignment: An insolvent individual, corporation or partnership may attemptreorganization by filing a proposal under the BIA. If the proposal is rejected by the debtor’screditors, the debtor is deemed to have assigned itself into bankruptcy.• Involuntary Assignment: An insolvent individual, corporation or partnership who resides or carrieson business in Canada, is indebted to creditors for at least $1,000 and has committed an act ofbankruptcy may be subject to an involuntary petition into bankruptcy by a creditor.Once assigned into bankruptcy, all of the property of the bankrupt vests in a trustee in bankruptcy who ischarged with the administration of the bankrupt’s estate and all unsecured creditors of the bankrupt arestayed from taking or continuing any proceedings against the bankrupt or its assets. Secured creditorsare not affected by the stay and can realize on their claims in accordance with their ordinary rights (unlessotherwise ordered by the court in certain circumstances).Receivership is the most common method used by secured creditors for realizing on assets over whichthey have been granted a security interest by a debtor. Receivership involves the appointment of areceiver (either a private appointment or a court appointment under provincial legislation) to takepossession of the debtor’s assets and arrange for their sale.WURA LiquidationLiquidations under the WURA are, generally, limited to major financial institutions which cannot beliquidated under the BIA. These include banks, insurance companies, trust companies and loancompanies. Therefore, the WURA is of little significance to the average Atlantic Canadian business.Where a corporation may be liquidated under either the WURA or the BIA, the BIA has precedence in thata proceeding under the WURA can be terminated if bankruptcy proceedings against the same corporationare taken under the BIA.Unlike the BIA, WURA proceedings are largely court driven. The court appoints the liquidator whichcarries out the day-to-day administration of the process and the court must approve all the key decisionsof the liquidator. The liquidator’s primary responsibilities are to take possession of all of the company’sproperty, to wind up its business, and to distribute its assets to its creditors. Unlike a trustee inbankruptcy, a liquidator ostensibly acts in the name of the corporation being wound-up and exercises thepowers of the corporation’s board of directors without acquiring an interest in any of the corporation’sproperty.Insolvency Legislation AmendmentsAn extensive and somewhat confusing number of insolvency legislation amendments were enacted overthe past few years, a number of which have not yet been proclaimed into force. In June of 2005, An Actto Establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act andPage 79

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadathe Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts wasintroduced as Bill C-55 in the House of Commons. Bill C-55 received Royal Assent on November 25,2005 and became Chapter 47 of the Statutes of Canada, 2005. Further amendments were introduced inBill C-62, An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors ArrangementAct, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005, whichreceived Royal Assent on December 14, 2007, and became Chapter 36, Statutes of Canada, 2007.The Wage Earner Protection Program Act came into force effective July 7, 2008, thereby creating theWage Earner Protection Program (“WEPP”). The WEPP provides for the payment of outstanding wages(including salaries, commissions, compensation for services rendered and, as a result of the 2009 federalbudget, severance pay and termination pay), capped at $3,000, to individuals whose employment isterminated as a result of a bankruptcy or receivership.Trustees and receivers are required to perform numerous duties to support the operation of the programincluding identifying individuals owed wages earned during the six months immediately prior to thebankruptcy/receivership, determining the amount of wages owing to each individual, and providinginformation to the individuals of the existence of the program and respecting payments to be madethereunder.Recent amendments to the BIA which are currently in force include the creation of a super-priority chargefor employees of up to $2,000 for unpaid wages, salaries, commissions or compensation owing from sixmonths prior to the date of the initial bankruptcy event or appointment of a receiver. This super-prioritymay be acted upon in exercising the rights of an employee under the WEPP or by individuals who do notqualify for payment thereunder. The charge attaches to “current assets”, including cash, accountsreceivable and inventory.Other significant amendments to the BIA were not yet in force at the time of writing, and include (but arenot limited to) a provision that only a licensed trustee may be appointed as a receiver either by the courtor under the terms of a security agreement to take control of all or substantially all of the inventory,accounts receivable or other property acquired for or used in relation to the business carried on by theinsolvent person or bankrupt. Also, as noted above, the BIA will codify for the first time the availability ofinterim financing during proposal proceedings, providing funds to restructuring businesses permittingthem to continue to operate while attempting to restructure debt. The interim lender will obtain a prioritycharge in respect of the amount financed, thereby increasing the likelihood that a willing lender can befound. An order for interim financing may be made on conditions that the court considers appropriate andthe amendments provide criteria which the court is to consider in deciding whether to make an order.Significant amendments to the CCAA, which were not yet in force at the time of writing, include (but arenot limited to) a similar codification of the availability of interim financing during the development of a planof arrangement or compromise. The amendments respecting interim financing will be similar to thosewhich will be contained in the BIA, as described above. The CCAA will also allow the debtor to apply tothe court for an order declaring a person to be a “critical supplier” of goods and services to the debtor. Insuch circumstances, the court may make an order requiring the critical supplier to supply any goods orservices specified in the order, on any terms and conditions that are consistent with the supplyrelationship or that the court considers reasonable.Numerous additional amendments are contained in the amending legislation but were not yet in force atthe time of writing. It is unclear as to when these additional amendments will be proclaimed into force.Page 80

CHAPTER 15ABORIGINAL LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 15 – ABORIGINAL LAWThis chapter provides a brief introduction to the key issues concerning aboriginal title and treaty rights inAtlantic Canada and examines how these issues may impact businesses in the region. To understandthe importance of aboriginal law in Atlantic Canada it is helpful to first review the key statutory provisionsdealing with aboriginal people in Canada.Statutory FrameworkConstitution Act, 1867Section 91(24) of the Constitution Act, 1867, assigns exclusive legislative authority over “Indians, andLands reserved for the Indians” to the federal government. Section 91(24) has been interpreted toinclude federal jurisdiction over the Inuit, as well as the jurisdiction to negotiate treaties with aboriginalgroups and exclusive jurisdiction over land held pursuant to aboriginal title. To date, the federalgovernment has taken the view that section 91(24) does not convey jurisdiction over the Métis.Indian ActThe federal Indian Act deals specifically with “Indians and lands reserved for Indians”. Under the IndianAct, various rights, privileges and restrictions are prescribed with regard to “Indians”, and reserve landscan be set aside for the use and benefit of “Indians”. The Indian Act defines who is an “Indian” and, witha few exceptions, it applies to all registered Indians and band governments across Canada.Although the Inuit are deemed to be Indian for the purposes of federal jurisdiction under section 91(24) ofthe Constitution Act, 1867, they are not subject to the Indian Act. The Métis and non-registered Indiansare also not covered by the Indian Act.Constitution Act, 1982Section 35 of the Constitution Act, 1982 expressly “recognized and affirmed” the existing aboriginal andtreaty rights of aboriginal peoples of Canada. This included historic treaties and modern land claimagreements. “Aboriginal peoples of Canada” is defined to include the Indian, Inuit and Métis peoples ofCanada.Prior to 1982, aboriginal rights existed at common law but were subject to extensive restriction by thefederal Crown and could be extinguished unilaterally by the government where it had a clear and plainintention to do so. This changed in 1982 with the enactment of section 35 of the Constitution Act, 1982.Canadian Charter of Rights and FreedomsSection 25 of the Canadian Charter of Rights and Freedoms (the “Charter”) states that the rights andfreedoms guaranteed under the Charter are not to abrogate or derogate from any aboriginal, treaty orother rights or freedoms pertaining to aboriginal peoples of Canada. The purpose of this provision is toprotect aboriginal rights from being infringed or impaired by Charter rights or freedoms. Section 25however does not stand alone and it must be read in conjunction with other sections of the Charter,including section 1 which provides that the rights and freedoms set out in the Charter can be subject tosuch reasonable limits prescribed by law as can be demonstrably justified in a free and democraticsociety.Aboriginal TitleDistinct Land InterestThe Supreme Court of Canada affirmed the existence of aboriginal title in Calder v. British Columbia(A.G.), [1973] S.C.R. 313 and has reaffirmed and expanded its meaning on a number of occasions.Page 81

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaAboriginal title is a unique common law interest in land which is held communally by the members of anaboriginal group. It is a distinct proprietary land interest which arises from prior use and occupation ofland by aboriginal people prior to European settlement.Aboriginal title provides aboriginal groups with the right to exclusive use and occupation of land for anumber of purposes, including mineral rights and the right to hunt, fish and exploit the land for naturalresources.Aboriginal title rights are not absolute and they are subject to limitations. They must be balanced with thespecial nature of the aboriginal title to the land in question. Any land held pursuant to aboriginal titlecannot be sold, transferred or surrendered to anyone other than the federal government and third partiescan only acquire an interest in such lands from the federal government with the consent of the aboriginalgroup in question.Establishing Aboriginal TitleTo establish aboriginal title an aboriginal group must satisfy the following three requirements as laid outby the Supreme Court of Canada in Delgamuukw v. British Columbia, [1997] 3 S.C.R. 1010:(1) The land must have been occupied by the aboriginal group prior to the assertion of Britishsovereignty;(2) If present occupation is relied upon as proof of pre-sovereignty occupation, there must becontinuity in the possession between the present and the pre-sovereignty occupation; and(3) At the time of sovereignty the occupation must have been exclusive.While at least one Canadian court has ruled that the existence of private interests on land cannotextinguish aboriginal title, it is still uncertain how aboriginal title will be reconciled with the interests ofprivate land owners, since the courts are only beginning to deal with these types of issues.Infringing on Aboriginal TitleOnly the federal government has jurisdiction to extinguish aboriginal title, but both the federal andprovincial governments have the power to infringe upon aboriginal title provided the infringement isjustifiable.To be constitutionally justifiable, an infringement of aboriginal title must be pursuant to compelling andsubstantial objectives. This includes development of agriculture, forestry, mining, hydroelectric powerand other land resources.Even though the federal and provincial governments may infringe upon aboriginal title, both levels ofgovernment must uphold the honour of the government and respect fiduciary obligations owed toaboriginal groups. These fiduciary obligations include the duty to consult with aboriginal groups.Nature of the Duty to ConsultThe Supreme Court of Canada has held that the “honour of the Crown” imposes on the federal andprovincial governments a duty to consult with aboriginal groups in respect of any proposed action thatcould infringe upon a group’s aboriginal and treaty rights.The duty to consult is triggered at a low threshold and arises whenever there is a reasonable prospectthat government decisions may infringe upon aboriginal or treaty rights, even if those rights have not yetbeen established in prior court proceedings. The content of the duty is variable, however, and incircumstances where rights or title are claimed, but not yet proven in court, the manner and degree ofconsultation required will depend on the strength of the aboriginal group’s claim.Page 82

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaThe case law requires the federal and provincial governments to give priority to aboriginal and treatyrights and as such, the duty to consult exists independently from other public consultation requirements.This means that simply including aboriginal groups in a public review process in some circumstances maynot be sufficient to discharge the governments’ obligation to consult, and a separate and distinctconsultation process may be required.Implications of the Duty to ConsultAny authorizations or regulatory approvals granted by the government without requisite satisfaction ofconsultation obligations are subject to legal challenge and can be quashed and remitted to theresponsible government departments for reconsideration.Government regulators and decision makers are placing increased consultation obligations on privateindustry. Although the duty to consult rests with the Crown and case law emphasizes the government’srole in the consultation process, the government is placing increasing pressure on private companies toalso consult with aboriginal groups and to go beyond existing regulatory and corporate requirements.Business Relations between Industry and Aboriginal GroupsFor practical and business reasons, private companies have been increasingly active in working withaboriginal groups in situations where they are contemplating a significant project on lands traditionallyclaimed by an aboriginal group. This has often involved the negotiation of Impacts and BenefitsAgreements (“IBAs”) between the company and the aboriginal group, or other cooperative businessrelationships, including partnerships, corporate structures or joint ventures.In some cases, the existence of a comprehensive land claim agreement may specifically mandate thenegotiation of an IBA, or other requirements, in order for a project to proceed on affected lands.For the offshore oil and gas industry, for instance, there is no requirement for an IBA but the OffshoreAccord legislation in place in NL and NS provides that the regulator may require developers to preparebenefits plans which include provisions that enable “disadvantaged groups” to have access to trainingand employment opportunities.Treaty RightsHistorical TreatiesFor much of the eighteenth century, England and France were embroiled in a struggle for control of NorthAmerica. During this period, England entered into a number of treaties with aboriginal peoples. Thesetreaties were intended to quell hostilities and secure peaceful relations between the British and variousaboriginal groups. Several of the treaties conferred hunting, fishing and planting rights to aboriginals,which rights receive constitutional protection under section 35 of the Constitution Act, 1982 and generallygive rise to the same Crown obligation of consultation.In recent years, a number of court cases have considered the extent of such rights to hunt, fish andharvest timber.Modern Treaties and Comprehensive Land Claims AgreementsIn addition to the historic treaties, the federal and provincial governments and aboriginal groups can alsonegotiate modern treaties, including comprehensive land claims agreements. These comprehensiveagreements often accord to the aboriginal group certain rights of self-determination, and can provide foran overlapping governmental structure, which may apply in addition to federal and provincial regimes.The scope and impact of such comprehensive agreements is significant, and can affect the land tenuresystem in affected lands, as well as the regulatory and permitting regime, and can also impose additionalrequirements for consultation or negotiation with the relevant aboriginal group before activity can proceedon the affected lands.Page 83

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaAt present, the only existing comprehensive land claims agreement in effect in the Atlantic Provinces isthe Labrador Inuit Land Claims Agreement, which affects large portions of eastern and northern Labrador.The Labrador Innu have made significant progress in negotiating their own comprehensive land claimsagreement, however, which will likely affect large portions of land in central Labrador. In September of2008, the Tshash Petapen (or “New Dawn”) Agreement was signed, which set out the groundwork for theconclusion of an Agreement-in-Principle on a final Labrador Innu land claims agreement.In New Brunswick, Nova Scotia and Prince Edward Island, no land claims agreements are currently inplace, although negotiations on land claims and other aboriginal rights issues continue. In Nova Scotiathe Mi’kmaq, the provincial government and the federal government have signed a Memorandum ofUnderstanding, pursuant to which the three parties have agreed to pursue tripartite negotiations, while inNew Brunswick, the Mi’kmaq and Maliseet have agreed to jointly research and negotiate anycomprehensive land claims in the province. Notwithstanding this progress, it is not expected thatcomprehensive land claims agreements in these provinces will be completed in the near future.Conducting Business On ReservesVarious differences exist when conducting business in relation to aboriginal reserves and aboriginalgroups as opposed to private land and private land owners. The key differences relate to taxation andfinancing.TaxationDespite what many Canadians may believe, aboriginal people are not generally exempt from taxation.Exemptions which do exist extend only to status Indians as defined in the Indian Act. In addition,exemptions only apply in relation to reserve lands and personal property of Indians situated on a reserve.The relevant federal exemptions are provided for in the Indian Act.Some provincial statutes make special provision for the exemption of Indians and Indian lands with regardto various types of provincial taxation. Provincial taxation laws must always be measured against theIndian Act, as any provincial law which imposes a tax where the federal act provides an exemption isinvalid.The tax treatment of status Indians has been somewhat fragmented. One of the more disputed issueswith respect to taxation includes the treatment of employment income. Section 87 of the Indian Actgenerally exempts personal property of an Indian situated on a reserve and the courts have held thatemployment income of status Indians is property for the purposes of section 87. As such, employmentincome earned on reserve may not be subject to income tax if the employee is a status Indian. Generallyspeaking, where pension or other benefits are associated with exempt employment income, these otherbenefits will also be exempt.The difficulty is in determining whether the employment income is “situated on reserve” for the purposesof section 87. While the courts have developed the “connecting factors” test to address this issue, andthe Canada Revenue Agency has published certain guidelines outlining their treatment of the issue, theapproach taken by the courts has not always been consistent. It is clear, however, that it will be verydifficult to obtain a taxation exemption where employment duties are performed off-reserve, even if theemployer is situated on-reserve, and it will be recalled that only status Indians under the Indian Act haveaccess to such exemptions.Section 87 of the Indian Act also has the effect of exempting personal property situated on a reserve fromprovincial and federal sales taxes. Where goods are purchased off-reserve but are delivered to thereserve and are to be consumed on reserve, the general rule is that they are exempt. Examples of thisinclude food, furniture, cars, etc. That being said, the federal and provincial governments frequentlychallenge the treatment of off-reserve purchases.Page 84

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaServices provided to an aboriginal person living on reserve and which are performed entirely on reservewill be considered to have been situated on the reserve. As such, they are not subject to sales andservices tax.Various other tax exemptions exist for certain commodities purchased by Indians. For example, provincialgasoline taxes and tobacco taxes may not be imposed when these items are purchased by Indians onreserve. Tax exemptions will not generally extend to Indians who live off-reserve if they do not consumethe goods or services on reserve.It is also notable that Indian Bands may make their own taxation by-laws for people and businesses onreserve.Businesses should always seek professional tax advice before dealing with situations involving taxexemptions.FinancingAboriginal people and bands living on reserve often experience considerable difficulty in obtainingfinancing. This is mainly due to the fact that pursuant to section 89 of the Indian Act, the real andpersonal property of Indians or Bands located on reserve cannot be used as security or collateral, nor canit be seized by anyone other than an Indian or a Band.Section 90 of the Indian Act also exempts from seizure personal property which was given to Indians orBands by the Crown pursuant to a treaty or agreement between a Band and the Crown. The courts haveruled that modern treaties and land claims agreements are covered by this section, meaning that anypersonal property conveyed by the Crown to an aboriginal group under such a treaty or agreement will beexempt from seizure.Accordingly, Indians living on reserve may have a difficult time providing security for loans without theassistance of government or corporate guarantees.There are however a number of exceptions which businesses should be aware of:• Leasehold interests in land designated by an aboriginal community for leasing purposes cansometimes be mortgaged;• Personal property purchased under a conditional sales contract can be seized as ownershipremains with the vendor until receipt of payment;• Indians or Bands may act as assignees or trustees, for a non-Indian financier; and• Corporate property is not exempt from seizure. As such, an Indian person who seeks financingmay be asked to incorporate a company. It should be noted, however, that the corporation istaxable.Page 85

CHAPTER 16MUNICIPAL LAW

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCHAPTER 16 – MUNICIPAL LAWMunicipalities constitute a third level of government, below the federal and provincial/territorial levels.Through legislation, the provinces devolve some of their powers and responsibilities for local matters tomunicipalities. The form of such legislation varies from province to province. In Prince Edward Islandand Newfoundland and Labrador some of the larger municipalities are subject to their own particularlegislation (e.g. the Charlottetown Area Municipalities Act), with the remaining municipalities beingcovered by a general municipalities act. In Nova Scotia, Halifax Regional Municipality has its own charterbut the remaining municipalities as with all of those in New Brunswick are governed principally by a singlemunicipalities act.While the form of the legislation may vary, in substance most municipalities across the Atlantic Provinceshave very similar powers and responsibilities. Municipalities are governed by elected councils, which aregenerally empowered to enact regulations or by-laws governing matters such as water and sewage,building construction, fire prevention, street lighting, parking, recreation, community economicdevelopment, animal control, heritage buildings, noise and other nuisances, and administration of themunicipality. Municipalities are also often consulted by the relevant provincial authority in the context ofother areas of provincial jurisdiction, such as liquor licensing.Municipal by-laws are available for examination at municipal clerk offices. Unofficial versions of municipalby-laws of most major centres are also published or available through each municipality’s official website.However, the particular municipality should always be consulted directly, to confirm the nature of anyrelevant regulation or by-law that may exist.Development and PlanningLand use planning and development control are governed by provincial planning legislation in all theAtlantic Provinces. Planning legislation provides for the development by municipalities of municipal planswhich set out statements of policy with respect to the future development and use of land, including suchfactors as conservation, abatement of pollution, development of communications and transportationsystems, and provision of municipal services. Municipalities are generally prevented from undertakingfuture developments in a manner that is inconsistent with their municipal plans.In addition to the municipal plan, municipalities are often required to adopt a development scheme settingout in greater detail whether certain lands are to be designated for industrial, commercial, or residentialuse. Zoning by-laws adopted by municipalities must be consistent with their municipal plans anddevelopment schemes.Development proposals which are non-conforming to zoning by-laws are prohibited, unless the developeris able to obtain a variation to the zoning by-laws for the proposed development. This process typicallyinvolves public notice to affected citizens and neighbours and the opportunity for them to state theirobjections. When granting a variance, municipal councils can impose reasonable terms and conditions.Municipalities are able to change their municipal plans, but the process is lengthy, and requires publicinput and, in some cases, ministerial approval..It is important to determine the zoning of property before commencing any type of development becausethe zoning could prohibit the type of business that a potential developer may plan to establish. Inaddition, where a business is involved in any form of development, municipal approval is often required.Failure to seek and obtain municipal approval can result in stop work orders, as well as prosecution underthe particular municipal legislation or regulation. Decisions made by municipal councils are subject toreview (in certain specified circumstances) by local appeal boards or by provincial supreme courts withthe potential for further court appeals.In some provinces, there may be provincial areas which are not within municipal boundaries and are notsubject to municipal regulation. However, such lands may still be subject to development restrictions.For example, the use of Crown lands is subject to many limits. As well, lands may be subject to variousPage 86

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadalicensing restrictions, such as those contained in forestry and mineral licences. Specific legal adviceshould thus be sought in respect of the development of any lands, whether subject to municipal regulationor not.In Prince Edward Island land holdings are regulated under the Lands Protection Act. Corporations andnon-residents cannot hold more than five acres of land or 165 feet of shore frontage without first obtainingExecutive Council approval. Executive Council commonly approves acquisitions of parcels over fiveacres or in excess of 165 feet of shore frontage but often imposes non-development conditions on theparcel to limit future subdivision and commercial use.Municipal TaxationMunicipalities are generally required and authorized by provincial legislation to impose real propertytaxes. The rate of taxation imposed on non-residential properties is usually higher than for residentialproperties.Municipalities in the provinces of Newfoundland and Labrador are also required to impose an annualbusiness tax on businesses carrying on business in the municipality. In Nova Scotia, municipalities arerequired to impose a separate assessment upon commercial properties. For some categories ofcommercial property there may also be a business occupancy assessment which has been graduallyphased out in recent years.Property and business taxes are normally based on a set mil rate multiplied by the assessed value of aproperty. Mil rates and taxing practices vary from municipality to municipality, so inquiries should bemade of the specific municipality to ascertain precise taxing levels and obligations.Property assessments for most municipalities are carried out by provincial bodies under provincialassessment legislation. Appeal mechanisms exist whereby property owners can challenge assessments.Legislation often allows for businesses to enter into tax agreements with municipalities, specifying certainrates of taxation for certain years. Many larger companies will negotiate these agreements withmunicipalities, as it provides certainty from abrupt increases in mil rates. Tax agreements are certainlyworth considering, especially if a business becomes the significant industry in a town, thus making thebusiness the largest target for tax revenue. In Nova Scotia, municipalities are generally prohibited fromentering such tax agreements but the provincial government has entered such arrangements wherebymunicipal taxes are set for large enterprises.Page 87

APPENDIXBUSINESS INCENTIVES

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaNew BrunswickAPPENDIX: BUSINESS INCENTIVES• New Brunswick Innovation FoundationThe mandate of the New Brunswick Innovation Foundation is to contribute to the development andenhancement of innovation capacity in New Brunswick. The Foundation supports targeted and leveragedinvestments in innovation, and in research and development in New Brunswick. The Foundation hasidentified priority areas for its funding initiatives, which include advanced manufacturing, energy andenvironmental technologies, the knowledge industry, life sciences and value-added natural resources.Among the funds and programs available through the Foundation are:• Research Innovation Fund (“RIF”)The RIF assists in building the innovation capacity of eligible organizations by supportinginnovation projects that have the potential for transforming new ideas into new products, services,technologies or processes. The RIF focuses on, but is not restricted to, applied R&D andinnovation activities performed in the province.• Enterprise Innovation Fund (“EIF”)The EIF is a pre-seed and seed capital investment fund designed to assist start-up and early stagecompanies grow and succeed by providing access to risk capital, business expertise andnetworking opportunities. The objective of the EIF is to support promising, innovative ventures withgood commercial potential undertaken by New Brunswick companies or individuals. The amountinvested in a company under the EIF is up to $250,000 per investment.• Venture Capital Fund (“VCF”)The VCF is an early stage venture capital investment fund designed to assist companies grow andprosper by providing access to venture capital, business expertise, support, and networkingopportunities. The objective of the VCF is to support promising innovative New Brunswickcompanies that are in the post-seed round of funding and have sound commercial products orservices and need capital to grow. Support is typically provided to companies in the form of directequity investments through the purchase of common stock, or in some cases in the form of indirectequity investments through the use of convertible debt. VCF investments generally do not exceed$500,000 per investment round. The Foundation may reinvest in subsequent rounds of funding.• Seed Equity Fund (“SEF”)The SEF is a start-up capital investment fund that provides entrepreneurs and small start-upventures located in New Brunswick with access to seed capital in order to support the initialcapitalization and development of innovative business throughout the province. With an emphasison the rural regions the SEF is designed to provide entrepreneurial New Brunswickers with aunique opportunity to obtain the critical equity financing they require to transform their innovationsand business concepts into commercially viable business ventures.• Special Regional FundingThe Northern Economic Development Fund has been created to stimulate economic development innorthern New Brunswick. Visit the Regional Development Corporation at http://www.gnb.ca/0096/indexe.aspfor program details.• Strategic Assistance ProgramBusiness New Brunswick’s Strategic Assistance Program offers provisionally forgivable loans to qualifyingprojects. The specific per-job funding level is based on return on investment and pay back to governmentcalculations. Other determinants of the per-job funding level include per-job wage levels, benefits,Page 88

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadageographic location (i.e., urban or non-urban area), and capital costs of the project. Integration with othergovernment programs is permissible.• Technology Adoption and Commercialization Program (“TAC”)The TAC program is financial assistance for manufacturers, processors and selected services firms insupport of technological innovation and pre-commercial product development. TAC is intended toencourage the adoption of improved technologies and processes by offsetting some of the direct costsassociated with identifying and securing such technologies and processes. It provides financial assistanceof up to 40% of eligible costs, to a maximum of $15,000.• Trade Assistance ProgramThis program is intended to introduce New Brunswick companies to exporting, and to assist in thedevelopment of "new" export markets outside of Atlantic Canada. Priority emphasis is on sectors with thegreatest potential to contribute to the New Brunswick economy. A maximum contribution of $5,000 perproject is provided for, with a maximum assistance allowed per company of $15,000.• Workforce Expansion ProgramThis program provides financial assistance to eligible employers in order to stimulate the creation of longtermemployment opportunities for unemployed individuals. The program also aims at encouraging thehiring of the province's post-secondary graduates. Funding is on the basis of a wage subsidy. Thepercentage of wage reimbursement varies from 50% to 70% of the hourly wage to a maximumreimbursement of $8.00 per hour.• Financial Assistance to Industry ProgramProvides financial assistance towards the establishment, expansion, or maintenance of new or existingmanufacturing or processing industries, selected commercial service firms (business to business with focuson export activity or import displacement), tourism operations (consistent with the tourism strategy), andinformation technology companies (consistent with the information technology strategy). Financialassistance may be provided in the form of a loan guarantee or direct loan.• Energy CostsNB Power offers very attractive electricity rates for commercial and industrial customers. Additionally, NBPower provides a “Declining Discount Firm Rate” for new facilities with firm load of at least 5000KW whichresults in a 50% reduction in the demand charge for a period of one year. The discount decreases to zero inyear six.• Business Taxation• Small Business Investor Tax CreditThis credit offers a 30% non-refundable personal income tax credit of up to $75,000 per year oneligible investments by New Brunswickers.• Research and Development Tax CreditNew Brunswick’s 15% R&D tax credit is fully refundable, meaning that the credit benefits NewBrunswick corporations even if the corporation does not have provincial tax owing. The refundamount is equal to the amount of credit in excess of tax otherwise payable under the NewBrunswick Income Tax Act. The credit does not have to be carried forward or back because it isfully refundable.• Provincial Sales Tax RebateBecause New Brunswick has combined its provincial sales tax rate with the federal rate, the entire13% sales tax on business inputs and purchases is a refundable tax credit for most businesses.Page 89

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• Film Tax CreditIn order to encourage the training and hiring of New Brunswick film personnel, the provinceprovides a Film Tax Credit equal to a maximum of 40% of eligible salaries paid to New Brunswickresidents. The value of this credit may also be included as part of the calculation of a productioncompany's equity in a production.• Film Production IncentivesIn addition to the Film Tax Credit noted above, the province funds a number of other programs andincentives aimed at supporting the New Brunswick film industry, through its New Brunswick Film agency.These include the following:• Development Loan ProgramThis program provides non-interest-bearing loans to eligible film production companies in order toassist project development.• Equity InvestmentsIn order to support New Brunswick-based production, New Brunswick Film may provide equityinvestment in projects where the potential of recoupment and profits are sufficiently high, andwhere there is potential for significant benefit to the province's film industry.There are a number of other programs available, such as industry-specific assistance for agricultural,fisheries and aquaculture operations. For further information on New Brunswick’s investment programs andincentives, contact:Business New BrunswickCentennial Building670 King StreetFredericton, New BrunswickE3B 1G1CanadaTel: 506-453-3707Fax: 506-453-3993E-mail: investnb@gnb.caWeb: http://www.gnb.ca/0398/index-e.aspPrince Edward Island• New Business Investment DivisionThe Business Investment Division is responsible for attracting off Island investment to Prince Edward Island.The current priority sectors for investment recruitment are the sectors of Food, Aerospace, Manufacturing,IT, Film and New Media and BioScience.Prince Edward Island Business Development recognizes that there is always risk in the development orexpansion of a business. It also recognizes that it is sometimes the venture that promises the greatestreturn to the province that involves the greatest amount of risk. In order to minimize the potential risks,Prince Edward Island Business Development has developed a portfolio of financial assistance programswhich are briefly described below:Page 90

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• Capital Acquisition Support ProgramBusinesses are most exposed to financial risk during start-up and expansion. This program assistsIsland businesses in acquiring the infrastructure needed to develop from start-up through tointernational exporting.• Craft Development ProgramPrince Edward Island Business Development will provide assistance to individuals, businesses andgroups engaged or planning to be engaged in craft production and who wish to exploit new marketopportunities as a means to creating full-time employment.• Equity Investors Incentive ProgramThrough a non-repayable incentive to investors, Prince Edward Island Business Developmentprovides new and expanding businesses with the means to attract private sector investment, thusreducing requirements for conventional term debt and working capital financing.• Entrepreneur Loan ProgramTo stimulate small business activity throughout the province, Prince Edward Island BusinessDevelopment provides guarantees on traditionally-financed loans for use as an investment ineligible new and expanding businesses.• Film and Television Development Loan ProgramTechnology PEI provides support for the development stage of eligible film and television projects.This can include development of a dramatic treatment and research through to final draft or outlinefor film or television including pre-production and budget preparation. Technology PEI provides anon-interest bearing loan to qualified applicants to support the project development process,including research, writing, market analysis, and costing which must precede the completion ofproduction financing arrangements. Projects must have a broadcaster committed to thedevelopment process with a financial contribution. Technology PEI provides up to one-third of theproposed development budget, to a maximum of $25,000, for qualifying applicants. TechnologyPEI requires a secured interest in the project until the loan is repaid and acquires a proportionalinterest in the project with a first option/last refusal to participate in the production financing.• Film & Television Short Film ProgramThe Technology PEI Short Film Program will provide financial assistance to new Prince EdwardIsland filmmakers. The intent is to provide an opportunity to produce short films that may be usedas a showcase for their work and advance the professional development of the applicant.Technology PEI may provide 25% to a maximum of $10,000 of the total cost of a production, in theform of a grant to produce a short film (under 30 minutes duration).• Marketing Support ProgramMarketing is a key component to any successful business start-up or expansion. This programprovides a non-repayable contribution to Island businesses requiring marketing advice and support.• Professional Service Assistance ProgramRecognizing that today's entrepreneurs do not always have the time or expertise to respondeffectively to all demands of their operation, Prince Edward Island Business Development providesa non-repayable contribution to Island businesses requiring professional advisory support.• Quality Improvement Support ProgramThis program provides financial assistance to Prince Edward Island businesses to acquire theprofessional expertise that will provide quality assurance documentation, auditing, registration andPage 91

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadacertification leading to the creation or enhancement of a Quality Improvement Program or acertified Quality Education Program for management and employees.• Rental Incentive ProgramTo meet the occupancy needs of new and expanding businesses, the Rental Incentive Programprovides financial assistance to businesses for leasing incremental space in any community inPrince Edward Island.• Technology Ideas Assessment ProgramThis program is designed to advance innovation by helping Island technology companies andentrepreneurs obtain early stage professional expert appraisal of their innovative technologyrelatedideas so as to enable them to move their opportunity from concept to market. TechnologyPEI assistance is in the form of a conditional non-repayable contribution towards the cost ofobtaining pre-commercial market research through the Canadian Innovation Centre.• Web Presence ProgramPrince Edward Island is becoming one of the leading provinces for web presence in Canada.Prince Edward Island Business Development provides a non-repayable contribution to Islandbusinesses to assist them in establishing a presence on the internet.• Winter Production Financing ProgramThis program provides financial assistance to new and expanding craft and giftware manufacturersto allow them to increase the inventory of their products during the winter months for sale in thepeak selling periods.• Wireless Technology Development FundThe Wireless Technology Development Fund is a public private partnership involving the Provinceof Prince Edward Island, Rogers Wireless Inc. and Ericsson Canada Inc. The objective of the fundis to support the development of a diverse range of projects for wireless and hand-heldtechnologies with an emphasis on technical, creative or design innovation. The $1-million fund willprovide investment funds for innovative wireless projects in Prince Edward Island.Contributions from the fund, which are available at any time throughout the year, are repayablethrough a royalty agreement. Interested parties are encouraged to contact the fund administratorvia email at jceden@gov.pe.ca to discuss the project or to find out more information regarding thefund. There is a two-pronged approach to the application process; initially candidates are requiredto submit an expression of interest, clearly outlining the project, its costs and benefits. Projectsfitting the program criteria are advanced to the full application process.For more information about these and other financial assistance programs contact:Scot MacDonald, DirectorNew Business Investment94 Euston Street, 2nd FlPO Box 340Charlottetown, PE C1A 7K7Tel: 902-368-5899Fax: 902 368 6255E-mail: dsmacdonald@gov.pe.ca• Business Taxation• Tax-free ZonesThe Province of Prince Edward Island has created a tax-free zone for aerospace companies thatlocate in Slemon Park in Summerside. The tax rebate incentive program includes an annual 100%Page 92

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadarebate of Provincial Sales Tax, Income Tax and Property Tax to qualifying companies until the year2012.Tax-free zones have also been established for eligible businesses operating in the West PrinceBusiness Park in Bloomfield and the Pooles Corner Business Park in Pooles Corner.• Innovation and Development Tax CreditThe Innovation and Development Tax Credit is a refundable tax rebate which may apply to projectsthat support the development and/or commercialization of new products, processes and serviceswhich will be sold primarily beyond the borders of Prince Edward Island. A new product, process orservice is one that has not previously been successfully developed in Prince Edward Island forcommercial production or sale. Through a certificate process, the program provides a rebate of taxequal to 35% of eligible salaries and wages, subject to a 150% increase for overhead and othernecessary costs. Projects are expected to be short term. Projects may exceed two years, but onlytwo years of expenditures may be used to calculate the IDTC.• Enriched Investment Tax CreditThis program provides an addition to the existing Investment Tax Credit of 10% applied to certaincapital investments by manufacturing and processing companies. For high-productivityapplications with a strong export focus, an enriched tax rebate of 25% will be available through apre-approved certificate process.• Share Purchase Tax CreditThe Share Purchase Tax Credit provides a tax rebate on Prince Edward Island personal incometax in the amount of 35% of the value of an eligible investment in an eligible provincial corporation.The maximum credit that an individual may claim in any taxation year is $35,000.• Specialized Labour Tax CreditThe Specialized Labour Tax Credit is intended to help kick-start new business growth by providingan incentive for workers with specialized expertise or skills to accept employment on PrinceEdward Island, where that knowledge or skill is not yet available in the provincial labour market.The 17% tax rebate applies to the personal income tax payable, for up to three years, on eligibleincome earned by the eligible individual.For further details on available tax incentives and other incentive programs, contact:Invest PEIPO Box 910Charlottetown, Prince Edward IslandCanada, C1A 7L9Toll free: 1-866-822-5500Tel: 902-368-6300Fax: 902-368-6301Email: info@investpei.comWeb: www.investpei.comNova Scotia• Small Business Financing ProgramThis program gives small business access to capital through a loan guarantee program initiated by theDepartment of Economic and Rural Development, Credit Union Central, and the NS Co-operative Council.Loans of up to $150,000 will be available to small businesses. The province will guarantee up to 75% of theloan, with the credit unions being responsible for the remaining 25%.Page 93

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaFor further information, contact:Department of Economic and Rural DevelopmentCentennial Building1660 Hollis St., Suite 600Halifax, NSB3J 3C8Tel: 902-424-4998Fax: 902-424-7008Web: http://film.ns.ca/• Payroll RebateNova Scotia Business Inc.’s payroll rebate program is a performance-based incentive offered to eligiblecompanies expanding in or locating to Nova Scotia. The rebate is a return (usually between five and 10percent) on the company’s eligible gross payroll. To receive the rebate, the company must create or retain atargeted number of jobs, at a minimum determined salary, within a set timeframe. The rebate is generallypaid out annually over a term not exceeding five years. For further details on this program, contact:Nova Scotia Business Inc.World Trade & Convention Centre1800 Argyle St., Suite 701P.O. Box 2374Halifax, NSB3J 3E4Toll free: 1-800-260-6682Fax: 902-424-5739E-mail: info@nsbi.ca• Business Taxation• New Small Business Tax DeductionNova Scotia’s New Small Business Tax Deduction effectively eliminates the Nova ScotiaCorporation Income Tax for the first three years for a new small business after incorporation. TheCorporation must apply each year to the Nova Scotia Minister of Finance for a Nova Scotia TaxDeduction Eligibility Certificate.Eligible Corporations: All new businesses incorporated in Nova Scotia after April 18, 1986 that:• have at least two employees, one of whom must be full-time and unrelated to anyshareholder, for the specified taxation year;• are not associated with another corporation(s);• are not in a partnership or a joint venture with an ineligible corporation(s);• are not a beneficiary of a trust where any beneficiary is ineligible;• are not a previous active business with essentially the same owner(s) or related owner(s);• are not a professional practice of an accountant, dentist, lawyer, medical doctor,veterinarian or chiropractor; and• are not a business carrying on the same, or substantially the same, business activity aswas carried on as a sole proprietorship, partnership or corporation.Page 94

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• Research and Development Tax CreditNova Scotia’s Research and Development Tax Credit (R&D credit) offers tax relief to incorporatedNova Scotia firms that incur qualified scientific research and experimental development (SR&ED)expenditures made in Nova Scotia, as defined by the federal Income Tax Act.R&D Rate: The credit rate for qualified expenditures is 15%. The rate is applicable to allcorporations that incur SR&ED expenditures in Nova Scotia, regardless of size.Refundability: Corporations that incur qualified SR&ED expenditures will be eligible for a refund ofthe tax credit where the tax credit exceeds Nova Scotia tax payable. The refund amount is equal tothe amount of the credit in excess of tax otherwise payable under the Nova Scotia Income Tax Act.Refundability is available to all corporations that incur qualified SR&ED expenditures in NovaScotia where the corporation has or would have taxable income allocated to Nova Scotia.Recapture: In the April, 2002 Budget, the Minister of Finance announced the introduction of a creditrecapture similar to the federal recapture for change of use or sale or transfer of assets chargedunder a prior credit.• Film Tax CreditNova Scotia’s Film Tax Credit is a refundable tax credit for costs directly related to the productionof films in Nova Scotia. The program encourages the development, training and hiring of NovaScotia film personnel in all disciplines.Eligibility: The tax credit is available to qualifying productions and co-productions produced and/orshot in Nova Scotia. Production companies applying for the tax credit must have a permanentestablishment in Nova Scotia (a fixed place of business, a production office, a branch etc.) andmust be incorporated under the laws of Nova Scotia, another province of Canada, or Canada.There is no limit on the size of the production budget, no corporate or asset cap, and no Canadiancontent or copyright ownership requirements associated with the tax credit. The tax credit is notreduced by any other tax credits that the production may receive.Calculations: The tax credit is calculated as the lesser of 50% of eligible Nova Scotia labourexpenditures or 25% of the total production costs for productions that occur in the Halifax RegionalMunicipality or the lesser of 60% of eligible Nova Scotia labour expenditures or 30% of totalproduction costs for productions that occur in other regions of the province. A five percent frequentfilming bonus is available to companies that have produced three films in a 24 month period.Further information on Nova Scotia’s Film Tax Credit is available at:Film Nova ScotiaP.O. Box 34104Scotia Square, RPOHalifax, Nova ScotiaB3J 3S1Toll free: 1-888-360-2111Fax: 902-424-0617web: http://film.ns.ca/• Digital Media Tax CreditThe Digital Media Tax Credit is a refundable tax credit for costs directly related to the developmentof interactive digital media products in Nova Scotia. The tax credit amounts mirror those of the FilmTax Credit (see above).• Nova Scotia Equity Tax CreditThe Equity Tax Credit is designed to assist Nova Scotia small businesses, co-operatives, andcommunity economic development (“CED”) initiatives in obtaining equity financing by offering apersonal income tax credit to individuals investing in eligible businesses. Equity financing is anPage 95

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canadaalternative to other forms of financing such as debt and traditional government assistance. Thecredit is not a grant nor is it considered to be a tax shelter.Eligible Investors: The credit is available to residents of Nova Scotia who are over 19 years of ageand who have bona fide reasons for making the investment, other than simply obtaining the taxcredit. Each eligible issue of shares must have at least three eligible investors. It should be notedthat any approval of shares issued under the program does not constitute an endorsement bygovernment of the corporation or co-operative issuing the shares. The Province does not guarantyany investment. The investor is at risk for his or her investment.Eligible Investments: In the case of corporations, eligible investments must be newly issuedcommon voting shares of the corporation that are non-redeemable, non-convertible and are notrestricted in profit sharing or participation upon dissolution. The shares cannot be eligible for anyother tax credit or deduction allowed under the Income Tax Act, except as a deduction for RRSPpurposes. In the case of co-operatives, eligible investments must be a share that would, if it werethe only share issued to the investor, allow the investor to be a member in the co-operative andallow the member to participate in the affairs of the co-operative. In addition, shares are not eligibleif the investor disposed of any shares of the eligible business at any time after September 30, 1993and before the specified issue of shares. The specified issue of shares means the shares that arespecified in the application of the eligible business to which a Certificate of Registration applies.Eligible Businesses: Eligible businesses include corporations and co-operatives incorporatedpursuant to the laws of Canada, including CED corporations and co-operatives. CED corporationsand co-operatives are those organizations created to assist or develop local businesses within thecommunity. The CED corporation or co-operative raises capital by issuing shares to individualsand in turn invests that capital in local businesses. In addition, eligible businesses must meet thefollowing criteria:• be involved in active business or investing in other eligible businesses,• have less than $25-million in assets,• have at least 25% of salaries and wages paid in Nova Scotia,• corporations must have authorized capital consisting of common voting shares,• co-operatives must be marketing, producing or employee co-operatives,• corporations must have at least three eligible investors taking part in the specified issue.Application: An eligible business must make application to the Department of Finance to obtain aCertificate of Registration prior to issuing shares to investors. This Certificate makes the specifiedshares eligible for the tax credit. Pre-approval of eligibility is required. This eligibility does notconstitute any approval that may be required from the Securities Commission under the SecuritiesAct.Prohibited Use of Funds: Funds raised by the eligible business must be used in an active businessand cannot be used for any of the following purposes:• lending, except under prescribed conditions,• purchasing shares, other than shares in other eligible businesses,• paying dividends or repaying shareholder debt to a director, shareholder or officer of thebusiness or an associate of a director, shareholder or officer of the eligible business,• purchasing services or assets from the province to carry on a business activity that is thesame or similar to the activity carried on by the province where that eligible business hasreceived any assistance from the province,Page 96

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• the redemption of shares or the funding of the purchase of all or substantially all of theassets of a previously existing proprietorship, partnership, joint venture, trust or company,except where that firm is in receivership or bankruptcy,• the purchase of assets or services by the eligible business for a price greater than fairmarket value.Tax Credit: The tax credit is calculated at 30% of the investment made by the individual to amaximum annual investment of $50,000 (maximum annual credit of $15,000). The investment maybe made within the calendar year or within 60 days of the end of the taxation year. The credit is notrefundable but may be carried forward for seven years or carried back three years. The maximumcredit which can be claimed in a single taxation year (including current year and the carry forwardor back amounts) cannot exceed $15,000.Investors are required to hold the investment for at least five years. If an investment is disposed ofwithin this five year period, the individual may be required to repay the tax credits earned.For further information on available tax incentives, contact:Nova Scotia Department of FinanceFiscal and Economic Policy BranchTaxation and Fiscal Policy Division1723 Hollis St., Halifax NSB3J 1V9Tel: 902-424-5554Fax: 902-424-0635E-mail: FinanceWeb@gov.ns.caNewfoundland and Labrador• Business Attraction FundThe Business Attraction Fund is designed to attract medium and large scale businesses to the province byproviding customized financial assistance. The fund consists of allocations for loans or incentives as well asnon-repayable contributions.• Business and Market Development ProgramThe Business and Market Development Program provides new entrepreneurs and expanding smallbusinesses with funding to help them acquire the necessary expertise to pursue new business ideas andnew markets for their products or services. The program supports new growth opportunities in the economy,such as value-added manufacturing activities and export oriented opportunities. The program will provideassistance of up to $25,000 in the form of a non-repayable grant. These funds must be matched on anequal basis by the applicant. Small businesses (those with less than 50 employees and less than $5-millionin annual sales) located and operating in Newfoundland and Labrador, including corporations, co-operativesand other similar structures, are eligible to apply.• CommercializationThis program provides funding to private sector enterprises for activities leading to the development ofinnovative, market-ready products and services. The program provides a direct equity investment or aconditionally repayable loan of up to 75% of total project costs to a maximum value of $500,000 per project.Eligible projects must be based in Newfoundland and Labrador and be innovative and in a post-researchstage of product and market development leading to full commercialization.• Oil & Gas Manufacturing and Services Export Development Fund (“OGEDF”)The OGEDF is designed to support strategic investments in new business opportunities for large-scaleexport-based petroleum fabrication, manufacturing and service provision.Page 97

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• Small and Medium-sized Enterprise FundThe Small and Medium-sized Enterprise Fund provides term loans and equity investments to small andmedium-sized businesses in strategic growth sectors, including value-added manufacturing, informationtechnology, aquaculture, bio-technology, marine services, agrifoods and tourism. The fund is also availableto businesses which have export potential and require assistance to enter or expand in external markets.Funds are provided to complement funding from conventional sources, where a need has beendemonstrated, and is also intended to increase the capital base of businesses allowing them to leveragenew private-sector investments. Available funding includes term loans of up to $500,000 per project at thedepartment's base rate plus three percent interest with an applicant investment of up to 20% of projectcosts. Equity Investment of up to $500,000 per project with an applicant investment of up to 20% of projectcosts are also available.• Economic Diversification and Growth Enterprises Program (“EDGE”)The EDGE program provides a package of incentives to encourage significant new business investment inthe province to help diversify its economy and stimulate new private sector job creation, particularly in ruralareas.Eligible Companies: A new business or an existing business interested in expanding in the province mayapply for EDGE status if it meets the following criteria:• it will create and maintain 10 new permanent jobs in the province;• it is prepared to make a minimum capital investment of $300,000 or generate incremental annualsales of $500,000;• it would not establish or expand in the province in the absence of the EDGE incentives;• the EDGE incentives will not give it a direct competitive advantage over other existing businessesin the province; and• the new business activity will have a substantial net economic benefit to the province.EDGE Incentives: Companies approved for EDGE status are entitled to the following incentives andbenefits:• a 100% rebate on provincial corporate income tax and the provincial payroll tax;• a 50% rebate on federal corporate income tax;• a 100% rebate on municipal property and/or municipal business taxes in participatingmunicipalities; and• access to unserviced Crown land for $1.00 where such land is required to implement thecompany’s business plan.For more information on these and other programs, contact:Department of BusinessGovernment of Newfoundland and Labrador6th Floor, East Block Confederation BuildingP.O. Box 8700St. John's, NLA1B 4J6Tel: 709-729-3254Fax: 709-729-3306E-mail: business@gov.nl.caWeb: www.nlbusiness.caPage 98

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• Business TaxationNewfoundland and Labrador has one of the most favourable business tax climates in Canada. TheCorporate Income Tax (“CIT”) rates are amongst the lowest in the country. The Harmonized Sales Tax hasresulted in the removal of tax on business inputs. Unlike many provinces, Newfoundland and Labrador doesnot impose a general capital tax. While Newfoundland and Labrador imposes a two percent payroll tax, theexemption threshold relieves virtually all small businesses from this tax. A number of tax credits andincentives are designed to encourage economic growth in strategic areas.• Manufacturing and Processing Profits Tax CreditThis credit applies to corporations that carry out manufacturing and processing from a permanentestablishment located in Newfoundland and Labrador. The credit allows a deduction from CITpayable of nine percent on taxable manufacturing and processing profits earned in the province.This results in an effective CIT rate of five percent for manufacturing and processing profits.• Direct Equity Tax CreditThe Direct Equity Tax Credit Program is designed to encourage private investment in new orexpanding small businesses as a means of creating new jobs and diversifying the economy. Aninvestment credit, in the form of a provincial income tax credit, is available to individuals and arm’slength corporations that invest as shareholders in eligible small business activities. There are twotax credit rates. Where the qualifying activities are undertaken in the province outside the NorthEast Avalon, a 35% rate applies. Where the qualifying activities are undertaken within the NorthEast Avalon, a 20% rate applies. In cases where qualifying activities are undertaken in both areas,a reasonable proration applies.• Small Business Tax CreditThe general CIT rate is 14%. However, small businesses are taxed at a rate of five percent on thefirst $300,000 of active business income.• Scientific Research and Experimental Development Tax CreditThis is a refundable credit of 15% of eligible expenditures made with respect to scientific researchand experimental development activities carried out in the province.• Film and Video Tax CreditThis refundable provincial CIT credit is provided for eligible local film projects. The credit is 40% ofeligible local labour costs, but may not exceed 25% of production costs or a single corporationcredit limit of $3-million. The corporation must also pay at least 25% of its salaries and wages toresidents of the province. The corporation must first apply for eligibility to the Newfoundland andLabrador Film Development Corporation prior to the commencement of production.For further information on available tax incentives, contact:Department of FinanceTaxation and Fiscal Policy BranchP.O. Box 8700St. John’s, NL A1B 4J6Toll free: 1-800-729-6297Fax: 709-729-2856E-mail: taxpolicy@gov.nl.caMore information on Newfoundland and Labrador business incentives can be found at the following website:www.nlbusiness.ca/flashsite/incentives.htmlPage 99

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic CanadaCanada• Atlantic Canada Opportunities Agency (“ACOA”) Business Development ProgramACOA provides unsecured, interest-free loans towards the eligible costs of new establishments, expansions,modernizations or projects which improve business competitiveness. ACOA's contribution is repayable on atime schedule tailored to the circumstances. The maximum level of assistance under the program is 50% ofeligible costs for start-ups, expansions and modernizations, and 75% of eligible costs for activities such astraining and quality assurance.• ACOA’s Atlantic Innovation FundThe Atlantic Innovation Fund (AIF) is a program designed to strengthen the economy of Atlantic Canada byaccelerating the development of knowledge-based industry. It is designed to focus on areas of strategicimportance to the region that offer the most potential for future growth, including information technology,ocean technologies, aquaculture, bio-technology, health/medical technologies, and environmentaltechnologies. Atlantic Innovation Fund investments could also strengthen the region's ability to developtechnologies that allow natural resource industries - such as oil and gas, agriculture and agri-food, fisheries,forestry and mining - to maintain and increase their competitiveness.The Atlantic Innovation Fund can provide assistance up to 80% of total eligible costs for non-commercialprojects and up to 75% of total eligible costs for commercial, private sector projects.For further details on these and other ACOA programs, please contact:ACOA Head OfficeBlue Cross Centre, 3 rd Floor644 Main StreetP.O. Box 6051Moncton, NBE1C 9J8Toll free: 1-800-561-7862Fax: 506-851-7403Web: www.acoa-apeca.gc.ca• Federal Investment Tax CreditDeducted from federal tax payable, this credit is 10% of net investment in equipment and buildings inmanufacturing, processing, mining, oil and gas, logging, farming, and fishing. Investment Tax Credits whichexceed federal tax payable can be carried back to reduce federal tax in the three previous years or carriedforward up to 10 years. This credit applies only in the Atlantic Provinces and Quebec’s Gaspé region.• Scientific Research & Experimental Development IncentivesFor Canadian corporations other than qualifying Canadian-controlled private corporations (CCPC), theinvestment tax credit rate for qualified scientific research and experimental development (SR&ED)expenditures is 20% for both current and capital expenditures. While these credits are non-refundable, theymay be carried back three years, or carried forward 10 years to reduce tax liability. Qualifying CCPCs canearn an investment tax credit of 35% up to the first $2-million of qualified expenditures for SR&ED carriedout in Canada. Visit the Canada Customs and Revenue Agency website at http://www.ccra.gc.ca/sred foradditional information.• Foreign Tax CreditCorporations which have foreign source income and are resident in Canada at any time in the year areeligible for a credit on foreign taxes paid. A credit is allowed against Canadian tax payable for the lesser ofthe foreign tax paid and the Canadian tax on the foreign source income.Page 100

______________________________________________________________________________Stewart McKelveyDoing Business in Atlantic Canada• Duty Drawbacks and Deferral ProgramThe Canadian government has arranged for the return of custom duty paid when the goods are imported ifthey are later exported or used for certain domestic manufacturing. To qualify for a drawback, you mustshow that the goods were later exported, destroyed under Customs supervision, discovered to be obsoleteor surplus, used as ship's stores or used in the assembly, manufacture, or attachment to goods that werelater exported or consumed in Canada. These duties are now recovered as an input tax credit. The DutyDeferral Program provides up-front relief of custom duties, anti-dumping and countervail duties, surtaxes,certain excise taxes and in some instances the harmonized sales tax. This program saves money byreducing the cost of production for goods destined for export from Canada.• Canadian Film or Video Production Tax CreditThe Canadian Film or Video Production Tax Credit (“CPTC”) is a fully refundable tax credit for films andvideos produced and owned by Canadian corporations. Under the CPTC program, the Canadian Audio-Visual Certification Office (“CAVCO”) performs two distinct functions: 1) Canadian content certification, and2) estimation of the eligible expenses of production. In order for a production to qualify as Canadian contentfor tax credit purposes through CAVCO, the production must meet specific criteria for key creative personneland production costs, which are outlined in their guidelines. The CPTC is available at a rate of 25% ofeligible salaries and wages. Eligible salaries and wages qualifying for the tax credit may not exceed 60% ofthe cost of the production, net of assistance, as certified by the Minister of Canadian Heritage. Therefore,the tax credit could provide a refund of up to 15% of the cost of production, net of assistance.For further information, call 1-888-433-2200 or visit http://www.cra-arc.gc.ca/E/pub/tg/rc4164/rc4164-06e.pdfPage 101

OUR OFFICE ADDRESSESNEW BRUNSWICKFREDERICTONSuite 600, Frederick Square77 Westmorland StreetPO Box 730, Fredericton, NB E3B 5B4Tel 506.458.1970 Fax 506.444.8974E-mail fredericton@smss.com•MONCTONSuite 601, Blue Cross Centre644 Main StreetPO Box 28051, Moncton, NB E1C 9N4Tel 506.853.1970 Fax 506.858.8454E-mail moncton@smss.com•NEWFOUNDLAND & LABRADORST. JOHN’SSuite 1100, Cabot Place100 New Gower StreetPO Box 5038, St. John’s, NL A1C 5V3Tel 709.722.4270 Fax 709.722.4565E-mail st-johns@smss.comNOVA SCOTIAHALIFAXSuite 900, Purdy’s Wharf Tower One1959 Upper Water StreetPO Box 997, Halifax, NS B3J 2X2Tel 902.420.3200 Fax 902.420.1417E-mail halifax@smss.comSAINT JOHNSuite 1000, Brunswick House44 Chipman HillPO Box 7289, Postal Station ASaint John, NB E2L 4S6Tel 506.632.1970 Fax 506.652.1989E-mail saint-john@smss.com•PRINCE EDWARD ISLANDCHARLOTTETOWN65 Grafton StreetPO Box 2140, Charlottetown, PE C1A 8B9Tel 902.892.2485 Fax 902.566.5283E-mail charlottetown@smss.com•