Foreign direct investment (FDI) plays a vital role in Canada’s economy, yet Ottawa manages a careful balance between openness and protective review. Investors need to grasp a dual reality: Canada generally embraces incoming capital, employment opportunities and technological advances, while applying focused oversight when matters of national interest, security or strategic sovereignty emerge. This article outlines the governing legal structure, highlights the strategic sectors drawing official attention, offers practical guidance for navigating the process, notes expected timelines and provides examples to assist foreign buyers in planning transactions involving Canadian assets.
The legal and institutional framework
- 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.
Key practical steps for foreign buyers
- Screen early: Once a target emerges, promptly evaluate whether the transaction meets the ICA net benefit threshold or might fall under a national security review, helping prevent unexpected issues or closing delays.
- Engage Canadian counsel and advisors: Local legal, regulatory and sector experts should guide filing requirements, industry-specific permits, stakeholder expectations and any likely conditions.
- Pre-notification consultations: Leverage confidential pre-notification discussions with the reviewing authority to resolve questions and identify possible national security concerns, which can streamline the formal review process and support mitigation planning.
- Consider deal structure: Structures such as minority stakes, joint ventures or staged acquisitions may avoid net-benefit review thresholds, though national security powers apply regardless of size.
- Prepare mitigation proposals: Be prepared to offer voluntary commitments, including Canadian board participation, pledges to sustain R&D or employment, data localization measures or limited access to specific facilities.
- Coordinate with provincial authorities: Real estate transactions, farmland acquisitions and resource licenses frequently require provincial approvals or registrations.
- Plan for timing and conditionality: Factor regulatory timelines and the possibility of conditions, remedies or divestiture orders into closing strategies 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.
Representative examples and key insights
- CNOOC’s acquisition of Nexen (2013): A major cross-border purchase by a Chinese state-owned enterprise that received approval following a public review process. The transaction moved forward with commitments designed to safeguard Canadian operations and investment levels. This example shows that state-affiliated buyers can prevail when they present tangible economic advantages and offer credible assurances.
- Blocked transaction: a proposed takeover of a major construction firm (2018): The federal government halted an attempted acquisition of a Canadian infrastructure company by a prominent foreign state-owned enterprise due to national security concerns. The outcome demonstrates that firms involved in critical infrastructure work may face intervention even if the bidder expresses willingness to adopt mitigation measures.
- Real-estate and provincial measures: British Columbia and Ontario implemented substantial non-resident property taxes and registration obligations in response to mounting housing affordability issues. These provincial actions show that, despite federal investment rules allowing a transaction, regional taxes and restrictions can significantly influence overall deal economics.
