Canada makes regulatory amendments concerning passive investment resulting in closure of Partner Categories of NL-PNP & PEI-PNP

The Newfoundland and Labrador, and Prince Edward Island (PEI) have immediately discontinued the Partner Category of their Provincial Nominee Programs (PNP) due to a regulatory amendment made by the Department of Citizenship and Immigration Canada (CIC) on June 25, 2008 concerning passive investment. The new Regulations have gone into effect September 2, 2008.

The Partner Category of both provincial nominee programs was intended for prospective immigrants with business and/or entrepreneurial skills and expertise who wish to "partner", in a limited manner, with other prospective immigrants in establishing a new business to be located in respective province, or invest in an expanding existing company within his/her province of choice. In both situations, the immigrant partner was required to take an active role in the new or investee company through his/her participation in the day-to-day operations and decision making activities of a company, as a director or senior manager, with a meaningful managerial role.

The problem that has been identified by the CIC was that the previous Regulations have proven to be worded in such a way that they allowed the use of PNPs Partner Category to attract passive investments in exchange for the promise of permanent residency. This wording suggested that any involvement, even minor, satisfied the exclusion because it did not define a minimum level of involvement by an entrepreneur in the active management of business in which they invested under the PNPs Partner Category. It was never intended that province and territories select passive investors under their PNPs Partner Category because the selection on the basis of ability to invest capital without involvement in the management of recipient business or organization is exclusive to the Federal Immigrant Investor Program (Federal IIP). Further Studies show that passive investors under PNPs Partner Category often move away from the region in which they originally settle.

For a better understanding of the issue it was important for CIC to distinguish the Federal Investors, who bring capital, from the provincial business immigrants who seek to come to Canada to become involved in the operation of a business. Also, this distinction was extremely relevant to the objectives of the PNP.

The Regulations amended subsections of the IRPR which set out excluded investment proposals under the PNP. The Regulations strengthen and clarify existing rules regarding the PNP and the passive investment of capital in Canadian businesses. The purpose of these Regulations is to prevent abuse of the PNP via passive investment schemes (as well as circumvention of the Federal IIP) while retaining flexibility so that a province can nominate a foreign national who makes an active investment in the province.

After the implementation of these Regulations, both provinces are consulting with immigrant and business organizations to implement a new "Entrepreneur" stream under their PNPs. Until then, any business plans and/or applications under the discontinued Partner Category will remain suspended and may be considered under the new proposed Entrepreneur Category.