Foreign direct investment (FDI) is essential to Canada’s economy, but Ottawa balances openness with protective screening. Investors must understand a two-track reality: Canada broadly welcomes capital, jobs and technology, while exercising targeted scrutiny where national interest, security or strategic sovereignty are at stake. This article explains the legal framework, strategic sectors that attract attention, practical navigation steps, timelines and illustrative cases to help foreign buyers plan transactions that involve Canadian assets.
The legal and institutional structure
- Investment Canada Act (ICA): The ICA governs federal screening of foreign acquisitions of control of Canadian businesses. It includes a traditional “net benefit” review for certain transactions and a separate, threshold-free national security review power. The implementing authority is the federal department responsible for economic development and industry policy.
- Net benefit test vs. national security review: The net benefit test applies to acquisitions above monetary thresholds and evaluates economic benefits to Canada (e.g., investment, employment, R&D). The national security review can be triggered for any investment, regardless of value, if officials believe the transaction could be injurious to national security.
- Provincial and sectoral regulators: Provincial rules and sector-specific regulators also matter. Examples include provincial land ownership or farmland rules, telecommunications licensing and spectrum controls, Fisheries and Oceans for marine infrastructure, and aviation regulators for airport or air-transport assets.
- State-owned enterprises and sensitive parties: Investments by state-owned enterprises or foreign investors with close ties to foreign governments typically attract extra scrutiny and may face more intensive national security analysis.
Which sectors draw the most scrutiny
- Critical minerals and energy: Canada holds abundant mineral and hydrocarbon resources, and transactions tied to rare earth elements, lithium, nickel, uranium, or major oil and gas assets receive heightened scrutiny due to their strategic importance and supply-chain impact.
- Telecommunications, data and digital infrastructure: Control of networks, data centers, or entities managing substantial volumes of personal or sensitive information is closely monitored because of privacy concerns and espionage risks.
- Defense and dual-use technologies: Aerospace operations, cybersecurity enterprises, advanced manufacturing activities, and suppliers serving the armed forces consistently rank as top priorities for national security reviews.
- Transport and critical infrastructure: Assets such as ports, rail networks, bridges, and airports carry direct implications for national security and public safety.
- Real estate in sensitive locations: Residential and commercial properties situated near military bases, major infrastructure, or essential government facilities face monitoring, and several provinces have enacted taxes or restrictions targeting foreign residential purchasers.
- Food, agriculture and water resources: Oversight applies to farmland, processing sites, and food supply chains, given their relevance to food security and provincial policy considerations.
Essential actionable steps for international buyers
- Screen early: As soon as a target is identified, assess whether the transaction triggers the ICA net benefit threshold or could be subject to a national security review. Early screening avoids surprises and closing delays.
- Engage Canadian counsel and advisors: Local legal, regulatory and industry specialists should advise on filing obligations, sector-specific permits, stakeholder expectations and likely conditions.
- Pre-notification consultations: Use confidential pre-notification meetings with the reviewing authority to clarify issues and surface potential national-security flags. This can shorten formal review timelines and help design mitigations.
- Consider deal structure: Minority investments, joint ventures, or phased acquisitions can avoid thresholds that trigger net-benefit reviews. However, national security review powers are threshold-free and can still apply.
- Prepare mitigation proposals: Be ready to offer voluntary undertakings — e.g., Canadian board representation, commitments to maintain R&D or employment levels, data localization or restricted access to certain facilities.
- Coordinate with provincial authorities: Real estate purchases, farmland acquisitions and resource licenses often require provincial clearances or registrations.
- Plan for timing and conditionality: Incorporate regulatory timelines and the possibility of conditions, remedies or divestiture orders into closing plans and financing arrangements.
Schedules, expenses and anticipated results
- Timelines: Reviews can range from weeks to many months. Typical initial staff reviews may be measured in 30–90 days; more complex net-benefit reviews or national security inquiries can extend beyond that. Complex mitigation negotiations add time. Always assume regulatory review will be longer than an ordinary commercial closing timeline.
- Costs: Legal, advisory and compliance costs can be substantial. If mitigation is required, implementing and monitoring undertakings (e.g., ring-fencing data or creating Canadian subsidiaries) adds ongoing expense.
- Outcomes: Possible outcomes include unconditional approval, approval with conditions or undertakings, divestiture orders, or outright prohibition. The national security power has occasionally been used to block transactions outright.
Illustrative cases and lessons
- CNOOC’s acquisition of Nexen (2013): A high-value foreign acquisition by a Chinese state-owned enterprise that was approved after a public review. The deal proceeded with commitments aimed at protecting Canadian operations and investments. The case illustrates that state-linked buyers can succeed when they offer clear economic benefits and credible undertakings.
- Blocked transaction: a proposed takeover of a major construction firm (2018): The federal government blocked a takeover of a Canadian infrastructure company by a large foreign state-owned enterprise on national security grounds. The decision shows that infrastructure and construction companies connected to critical projects can trigger enforcement even when the bidder is willing to negotiate mitigations.
- Real-estate and provincial measures: British Columbia and Ontario introduced significant non-resident property taxes and registration requirements in response to housing affordability concerns. These provincial tools demonstrate that even if federal investment rules permit a purchase, local taxes and restrictions may materially affect deal economics.
