Canadian Structured Finance Law : Canadian Structured Finance Law: Securitization/OTC Derivatives Blog by Stikeman Elliot Lawyers & Attorneys

Wide range of products, including margin loans, now covered

Margaret Grottenthaler

In the Spring of 2007, Canada's Parliament amended several federal insolvency statutes so as to transfer the definition of the class of protected contracts known as "eligible financial contracts" (EFCs) from the federal insolvency statutes themselves to their respective associated regulations. On November 15, the Treasury Board approved the finalized regulations to the Bankruptcy and Insolvency Act, the Winding-up and Restructuring Act, the Companies' Creditors Arrangement Act, and the Canada Deposit Insurance Corporation Act. The changes were effective November 17, 2007. The long-awaited EFC definition includes the following types of agreement:

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Kevin Kelly

As reported in Stikeman Elliott's April 12, 2007 Structured Finance Update, it was announced in the March 2007 Federal Budget that an agreement in principle had been reached between Canada and the U.S. that would update the Canada-U.S. tax treaty with the effect of eliminating withholding tax on interest paid on arm's length cross-border financings between Canada and the U.S. It was also announced in the Federal Budget that the Income Tax Act would be amended to eliminate Canadian non-resident withholding tax on interest paid by Canadian residents to all arm's length foreign residents, regardless of their country of residence. The amendments to the Income Tax Act were intended to be conditional on the implementation of the changes to the Canada-U.S. tax treaty and were initially proposed to be effective once the arm's length exemption in the Canada-U.S. tax treaty came into effect. The measures announced in the Federal Budget were welcome news as the proposed changes with respect to Canadian non-resident withholding tax will facilitate a Canadian resident's access to foreign debt financing without the structural limitations currently imposed by the so-called "5/25 exemption" contained in the Income Tax Act.

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On November 24, 2007, Canada's federal Department of Finance announced proposed new regulations under the Bank Act, Cooperative Credit Associations Act and Trust and Loan Companies Act that will apply to Principal Protected Notes (PPNs). As reported in the Canada Gazette, the new regulations would define PPNs and specify "the content, manner and timing of disclosure that federally regulated deposit-taking institutions are required to provide at the point of sale for various sales channels" as well as other consumer-related requirements. The proposal is part of the federal government's "Advantage Canada" competitiveness program, designed to promote flexible outcomes-focussed approaches to regulation in response to rapid developments in global financial markets. Those wishing to comment have 30 days from the date of publication to respond.

The draft regulation is available online in the Canada Gazette, Part I for November 24, 2007, beginning on page 3279.
 

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