CAE – Federal Court of Appeal confirms that an unconditionally repayable loan with below-market yield was government assistance

CAE, which was engaged in manufacturing flight simulator systems, incurred over $700 million in R&D expenditures on further developing such systems, as to which it received “contributions” over a five-year period of $250 million from Industry Canada. Under the agreement with Industry Canada, CAE was required to repay 135% of the amounts advanced (or $337.5 million) beginning after the last advance was made and in escalating specified amounts over a 15-year period.

Boivin JA found that Ouimet J had not made a reversible error in finding “that the amounts received by CAE were not made pursuant to an ordinary commercial agreement, having regard to the terms of the agreement and, in particular, the implicit rate of return, which he found to be substantially lower than the market rate for a comparable loan and therefore contrary to the commercial interests of a private lender,” and in then applying Consumers' Gas, CCLC Technologies and Immunovaccine Technologies to conclude that the amounts received in the reassessed years were “government assistance,” as defined in s. 127(9).

Neal Armstrong. Summary of CAE Inc. v. Canada, 2022 CAF 178 under s. 127(9) – government assistance.