Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Reporting issuer seeking relief so that it can continue to file financial statements in accordance with pre-changeover Canadian GAAP (rather than IFRS) for periods relating to the issuer's financial year beginning on September 1, 2013 and ending on August 31, 2014 (the issuer's deferred financial year) -- In particular, the issuer is seeking relief from the requirements in Part 3 of National Instrument 52-107 that would apply to financial statements for periods relating to the issuer's deferred financial year -- The issuer is also seeking relief from the IFRS-related amendments to the continuous disclosure, prospectus, certification and audit committee rules (collectively, the rules) that came into force on January 1, 2011 and that would apply to periods relating to the issuer's deferred financial year -- The issuer is an "rate regulated entity" as defined in Accounting Guideline 19 Disclosures by entities subject to rate regulation (AcG-19) in the Handbook of the Canadian Institute of Chartered Accountants -- At its meeting on September 2012, the Canadian Accounting Standards Board decided that rate regulated entities, as defined in and applying AcG-19, will only be required to adopt IFRS for annual periods beginning on or after January 1, 2014 -- Since Part 3 of NI 52-107 and the IFRS-related amendments to the rules do not have a provision providing for a three-year deferral of the transition to IFRS for entities with rate-regulated activities subject to NI 52-107 and the rules, the issuer has applied for the relief -- Relief granted, subject to a number of conditions.

Applicable Legislative Provisions

National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, Parts 3 and 4.

National Instrument 51-102 Continuous Disclosure Obligations.

National Instrument 41-101 General Prospectus Requirements.

National Instrument 44-101 Short Form Prospectus Distributions.

National Instrument 44-102 Shelf Distributions.

National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings.

National Instrument 52-110 Audit Committees.

December 20, 2012

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

NAV CANADA

(THE "FILER")

DECISION

Background

1. The Filer has obtained exemptive relief under Ontario securities legislation (the "Legislation") from the Ontario Securities Commission in the decision of the Ontario Securities Commission dated July 4, 2012 that, subject to certain conditions, provided an exemption from and a deferral of:

(a) the requirements in Part 3 of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards ("NI 52-107") that apply to financial statements, financial information, operating statements and pro forma financial statements for periods relating to the Filer's financial year beginning on September 1, 2012 and ending on August 31, 2013 (the "Filer's deferred financial year");

(b) the amendments to National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102") related to International Financial Reporting Standards ("IFRS") that came into force on January 1, 2011 and that apply to documents required to be prepared, filed, delivered, or sent under NI 51-102 for periods relating to the Filer's deferred financial year;

(c) the IFRS-related amendments to National Instrument 41-101 General Prospectus Requirements ("NI 41-101") that came into force on January 1, 2011 and that apply to a preliminary prospectus, an amendment to a preliminary prospectus, a final prospectus or an amendment to a final prospectus of the Filer which includes or incorporates by reference financial statements of the Filer in respect of periods relating to the Filer's deferred financial year;

(d) the IFRS-related amendments to National Instrument 44-101 Short Form Prospectus Distributions ("NI 44-101") that came into force on January 1, 2011 and that apply to a preliminary short form prospectus, an amendment to a preliminary short form prospectus, a final short form prospectus or an amendment to a final short form prospectus of the Filer which includes or incorporates by reference financial statements of the Filer in respect of periods relating to the Filer's deferred financial year;

(e) the IFRS-related amendments to National Instrument 44-102 Shelf Distributions ("NI 44-102") that came into force on January 1, 2011 and that apply to a preliminary base shelf prospectus, an amendment to a preliminary base shelf prospectus, a base shelf prospectus, an amendment to a base shelf prospectus or a shelf prospectus supplement of the Filer which includes or incorporates by reference financial statements of the Filer in respect of periods relating to the Filer's deferred financial year;

(f) the IFRS-related amendments to National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings ("NI 52-109") that came into force on January 1, 2011 and that apply to annual filings and interim filings for periods relating to the Filer's deferred financial year; and

(g) the IFRS-related amendments to National Instrument 52-110 Audit Committees ("NI 52-110") that came into force on January 1, 2011 and that apply to periods relating to the Filer's deferred financial year (collectively, such exemptions and deferrals represent the "Granted Relief").

2. The Ontario Securities Commission has received an application from the Filer under Section 144(1) of the Act for a variation of the Granted Relief such that: (i) the exemption from and deferral of the mandatory changeover date to IFRS under NI 52-107 and the Rules (as defined below) will be extended for one additional year to include the Filer's financial year beginning on September 1, 2013 and ending on August 31, 2014; and (ii) the Filer will be required to adopt IFRS for annual periods beginning on or after January 1, 2014 (the "Variation Sought").

3. Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) The Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that Section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in the Provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador and in the Yukon Territory, the Northwest Territories and Nunavut.

Interpretation

4. Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

5. This decision is based on the following facts represented by the Filer:

1. The Filer was incorporated under Part II of the Canada Corporations Act (Ontario) on May 26, 1995 and will be continued under the Canada Not-for-profit Corporations Act.

2. The head office of the Filer is located in Ottawa, Ontario.

3. The Filer is a non-share capital corporation.

4. The Filer is a "reporting issuer" within the meaning of applicable securities legislation in each of the provinces and territories of Canada.

5. The Filer has $1.9 billion of outstanding bonds and notes. These debt instruments do not trade on any exchange.

6. The Filer is not in default of securities legislation in any jurisdiction as at December 12, 2012.

7. The Filer's fiscal year end is August 31.

8. The Filer is an entity whose activities are subject to rate regulation as described in Accounting Guideline 19 -- Disclosures by entities subject to rate regulation ("AcG-19") in the Handbook of the Canadian Institute of Chartered Accountants (the "Handbook"). As such, the Filer applies AcG-19 in the preparation of its financial statements in accordance with Part V of the Handbook -- Canadian generally accepted accounting principles for public enterprises that is the pre-changeover accounting standards ("pre-changeover Canadian GAAP").

9. As part of the changeover to IFRS in Canada, the Canadian Accounting Standards Board (the "AcSB") has incorporated IFRS into the Handbook as Canadian GAAP for most publicly accountable enterprises, including the Filer. As a result, the Handbook contains two sets of standards for publicly accountable enterprises:

(a) Part I of the Handbook -- Canadian GAAP for publicly accountable enterprises that applies for financial years beginning on or after January 1, 2011; and

(b) pre-changeover Canadian GAAP.

10. On October 1, 2010, the AcSB published amendments to Part 1 of the Handbook that provided a one-year deferral of the transition to IFRS for entities with qualifying rate-regulated activities. The amendments required such entities, as defined in and applying AcG-19, to adopt IFRS for annual periods beginning on or after January 1, 2012.

11. On December 10, 2010, the Ontario Securities Commission and the Canadian Securities Administrators, as applicable, published "IFRS-Related Amendments to Securities Rules and Policies" (the "2010 Amendments") as part of the changeover to IFRS. As part of this changeover, NI 52-107 was repealed and replaced effective January 1, 2011. In the new version of NI 52-107,

(a) Part 3 contains requirements based on IFRS and applies to financial statements, financial information, operating statements and pro forma financial statements for periods relating to financial years beginning on or after January 1, 2011;

(b) Part 4 contains requirements based on pre-changeover Canadian GAAP and applies to financial statements, financial information, operating statements and pro forma financial statements for periods relating to financial years beginning before January 1, 2011; and

(c) Section 5.4 permits qualifying rate-regulated entities to defer transition to IFRS for one year. Such entities are required to transition to IFRS for periods relating to financial years beginning on or after January 1, 2012 pursuant to NI 52-107.

12. The 2010 Amendments also made amendments to NI 51-102, NI 41-101, NI 44-101, NI 44-102, NI 52-109 and NI 52-110 (collectively, the "Rules") and these amendments came into force on January 1, 2011. Among other things, the 2010 Amendments replace Canadian GAAP terms and phrases with IFRS terms and phrases and contain IFRS-specific requirements. The amendment instruments for the Rules contain transition provisions that provide that the IFRS-related amendments only apply to documents required to be filed under the Rules for periods relating to financial years beginning, for most entities, on or after January 1, 2011. Thus, during the IFRS transition period,

(a) issuers filing financial statements prepared in accordance with pre-changeover Canadian GAAP will be required to comply with the versions of the Rules that contain Canadian GAAP terms and phrases, and

(b) issuers filing financial statements that comply with IFRS will be required to comply with the versions of the Rules that contain IFRS terms and phrases and IFRS-specific requirements.

13. The 2010 Amendments to the Rules are consistent with the exception for rate-regulated entities in Section 5.4 of NI 52-107, permitting rate-regulated entities to defer transition to IFRS until financial years beginning on or after January 1, 2012.

14. In March 2012, the AcSB decided to extend the deferral of the mandatory changeover date to IFRS for an additional year, such that entities with qualifying rate-regulated activities, as defined in and applying AcG-19, would only be required to adopt IFRS for annual periods beginning on or after January 1, 2013.

15. On July 4, 2012, the Decision Maker issued a decision that, subject to the conditions contained therein, provided the Filer with the Granted Relief.

16. In September 2012, the AcSB announced a further extension of the deferral of the mandatory changeover date to IFRS for an additional year, such that entities with qualifying rate-regulated activities, as defined in and applying AcG-19, are only required to adopt IFRS for annual periods beginning on or after January 1, 2014.

17. The March 2012 and September 2012 decisions of the AcSB, each to extend by one year the deferral of the mandatory changeover date to IFRS for entities with qualifying rate-regulated activities, are not currently reflected in NI 52-107 and the Rules.

18. NI 52-107 and the Rules apply to the Filer. Since Part 3 of NI 52-107 and the 2010 Amendments to the Rules do not have a provision providing for a three-year deferral of the transition to IFRS for entities with rate-regulated activities subject to NI 52-107 and the Rules, the Filer has applied for the Variation Sought.

19. During the entire period of the Granted Relief, as extended by the Variation Sought, (the "Filer's deferred financial years"), the Filer will comply with section 1.13 of Form 51-102F1 Management's Discussion and Analysis ("MD&A") by providing an updated discussion of the Filer's preparations for changeover to IFRS in its annual and interim MD&A. In particular, the Filer will discuss the expected effect on the financial statements, or state that the effect cannot be reasonably estimated.

20. The Filer acknowledges that if the Variation Sought is granted, the Filer:

(a) will be subject to Part 3 of NI 52-107 and the 2010 Amendments to the Rules for periods relating to financial years beginning on or after January 1, 2014; and

(b) will not have the benefit of the 30 day extension to the deadline of filing the first interim financial report in the year of adopting IFRS in respect of an interim period beginning on or after January 1, 2011, as set out in the IFRS-related amendments to NI 51-102, since that extension does not apply if the first interim financial report is in respect of an interim period ending after March 30, 2012.

Decision

The Ontario Securities Commission is satisfied that the decision meets the test set out in the Legislation.

The decision of the Ontario Securities Commission under the Act is that the Variation Sought is granted provided that:

(a) the Filer continues to be an entity with qualifying rate-regulated activities, as defined in and applying AcG-19;

(b) the Filer provides the communication as described and in the manner set out in paragraph 19 above;

(c) the Filer complies with the requirements in Section 5.4 of NI 52-107 for all financial statements (including interim financial statements), financial information, operating statements and pro forma financial statements for periods relating to the Filer's deferred financial years, as if the expression "January 1, 2012" in Section 5.4 were read as "January 1, 2014";

(d) the Filer complies with the version of NI 51-102 that was in effect on December 31, 2010 (together with any amendments to NI 51-102 that are not related to IFRS and that come into force after January 1, 2011) for all documents required to be prepared, filed, delivered, or sent under NI 51-102 for periods relating to the Filer's deferred financial years;

(e) the Filer complies with the version of NI 41-101 that was in effect on December 31, 2010 (together with any amendments to NI 41-101 that are not related to IFRS and that come into effect after January 1, 2011) for any preliminary prospectus, amendment to a preliminary prospectus, final prospectus or amendment to a final prospectus of the Filer which includes or incorporates by reference financial statements of the Filer in respect of periods relating to the Filer's deferred financial years;

(f) the Filer complies with the version of NI 44-101 that was in effect on December 31, 2010 (together with any amendments to NI 44-101 that are not related to IFRS and that come into effect after January 1, 2011) for any preliminary short form prospectus, amendment to a preliminary short form prospectus, final short form prospectus or amendment to a final short form prospectus of the Filer which includes or incorporates by reference financial statements of the Filer in respect of periods relating to the Filer's deferred financial years;

(g) the Filer complies with the version of NI 44-102 that was in effect on December 31, 2010 (together with any amendments to NI 44-102 that are not related to IFRS and that come into effect after January 1, 2011) for any preliminary base shelf prospectus, amendment to a preliminary base shelf prospectus, base shelf prospectus, amendment to a base shelf prospectus or shelf prospectus supplement of the Filer which includes or incorporates by reference financial statements of the Filer in respect of periods relating to the Filer's deferred financial years;

(h) the Filer complies with the version of NI 52-109 that was in effect on December 31, 2010 (together with any amendments to NI 52-109 that are not related to IFRS and that come into effect after January 1, 2011) for all annual filings and interim filings for periods relating to the Filer's deferred financial years;

(i) the Filer complies with the version of NI 52-110 that was in effect on December 31, 2010 (together with any amendments to NI 52-110 that are not related to IFRS and that come into effect after January 1, 2011) for periods relating to the Filer's deferred financial years;

(j) if, notwithstanding this decision, the Filer decides not to rely on the Variation Sought and files an interim financial report prepared in accordance with IFRS for an interim period in a deferred financial year, the Filer must, at the same time:

(i) restate, in accordance with IFRS, any interim financial statements for any previous interim period in the same deferred financial year (each, a "Previous Interim Period") that were originally prepared in accordance with pre-changeover Canadian GAAP and filed pursuant to this decision; and

(ii) file a restated interim financial report prepared in accordance with IFRS for each Previous Interim Period, together with corresponding restated interim MD&A and certificates required by NI 52-109. For greater certainty, any restated interim financial report for a Previous Interim Period must comply with applicable securities legislation (including Part 3 of NI 52-107 and the amendments to Part 4 of NI 51-102 that came into force on January 1, 2011) and any restated interim financial report for the first interim period in a deferred financial year must include the opening IFRS statement of financial position at the date of transition to IFRS; and

(k) if, notwithstanding this decision, the Filer decides not to rely on the Variation Sought and files annual financial statements prepared in accordance with IFRS for a deferred financial year, the Filer must, at the same time (unless previously done pursuant to paragraph (j) immediately above):

(i) restate, in accordance with IFRS, any interim financial statements for any Previous Interim Period that were originally prepared in accordance with pre-changeover Canadian GAAP and filed pursuant to this decision; and

(ii) file a restated interim financial report prepared in accordance with IFRS for each Previous Interim Period, together with corresponding restated interim MD&A and certificates required by NI 52-109. For greater certainty, any restated interim financial report for a Previous Period must comply with applicable securities legislation (including Part 3 of NI 52-107 and the amendments to Part 4 of NI 51-102 that came into force on January 1, 2011) and any restated interim financial report for the first interim period in a deferred financial year must include the opening IFRS statement of financial position at the date of transition to IFRS.

"Cameron McInnis"
Chief Accountant, Chief Accountant's Office
Ontario Securities Commission