EY Outbound Insights – Uncovering the Investment Canada Act

An overview of the Investment Canada Act (ICA) and the evolving review framework for foreign investment in Canada.

In brief

• Federal industry officials routinely review non-Canadian investments into Canada. They are charged with upholding a delicate balance: simultaneously encouraging the entry of foreign capital while keeping priority businesses and technologies under Canadians’ control.
• Beyond net benefit and national security reviews, notification is required under the ICA for investment transactions in which a non-Canadian acquires control of or establishes a “Canadian business.”

Purpose and scope of net benefit investment reviews

Federal industry officials routinely review non-Canadian investments into Canada. They are charged with upholding a delicate balance: simultaneously encouraging the entry of foreign capital while keeping priority businesses and technologies under Canadians’ control.

Hansard evidence arising from the introduction of the ICA in 1984 reveals the context and purpose giving rise to the ICA; namely, replacing the Foreign Investment Review Agency (FIRA), created under the Foreign Investment Review Act (FIR Act) in the 1970s. Reviews under the FIR Act were mandated with the aim of imposing conditions to ensure that investments by non-Canadians were “likely to be of significant benefit” to Canada, a precursor to today’s “net benefit review.”¹

Interventions from the Industry Minister and Members of Parliament approximately a decade later show that the government believed FIRA’s requirement for investors to demonstrate “significant benefit” to Canada discouraged investment. The shift from “significant benefit” to “net benefit” was thought to be a less onerous standard for investors.

During debates in the House of Commons and review during third reading by the Standing Committee on Regional Development at the time, Members of Parliament also discussed exemptions provided under section 10 of the ICA. 

For example, the ICA does not apply to the acquisition of control of a Canadian business by reason of an amalgamation, merger, consolidation or a corporate reorganization if the ultimate control of the business remains unchanged. Nor does it apply to the acquisition of control of a Canadian business of a Crown corporation, a provincial Crown corporation or a municipal corporation. 

The ICA also introduced higher, more permissive thresholds relative to the FIR Act. Specifically, section 14 of the ICA provides for the review of direct acquisitions of Canadian businesses with assets of CA$5m or more and of indirect acquisitions of Canadian businesses with assets of CA$50m or more. The operation of these thresholds was cited as an important improvement over the FIR Act, which had occasionally required cabinet to approve foreign investments as low as CA$1,000.

National security reviews

Part IV.1 of the ICA, “Investments Injurious to National Security”, was added in 2009. The government heeded the recommendation made in a 2008 report (the Wilson report) for an explicit national security test “in a post-9/11 world” aligned with the United States Committee on Foreign Investment regime, which had existed under executive order since 1975 and was later revised and placed on a statutory footing by the Foreign Investment and National Security Act of 2007. 

The national security review provision in Part IV.1 met with concern that uncertainty on its scope of application would deter foreign investors. Since the national security amendment to the ICA was passed by way of an omnibus budget implementation bill (Bill C-10, Budget Implementation Act, 2009), it was not reviewed by the Standing Committee on Industry, Science and Technology. Instead, the Standing Committee on Finance reviewed the omnibus legislation as a whole. As a result, the national security review provision was not discussed substantively by the Minister of Industry or other lawmakers in the House of Commons prior to its enactment. 

Application of national security reviews to Chinese investors

A February 2026 report prepared by Innovation, Science and Economic Development Canada (ISED) on ICA filings reveals that while the share of filings from the PRC increased in 2024–25 relative to 2023–24 (44 filings, from 3.2 to 3.9 per cent), those same investments accounted for almost 68.8% of those subject to extended review orders under section 25.3 of the ICA (11 of 16). 

The ICA and Investment Canada Regulations passed under the ICA do not identify specific countries as preferred investment partners. Notably, however, investments from the US, EU and UK accounted for 83.4% of filings (949 in total), but only 12.5% of section 25.3 review orders (2 of 16). 

This data reveals a correlation between the extended review of transactions, particularly under section 25.3 of the ICA, and the investor’s countries of origin. 

Notably, all foreign investors subject to divestiture orders announced since 2022 involved Chinese controllers or ultimate beneficial owners. These divestiture orders involved private investors; accordingly, even non-SOE investors can face scrutiny when investing in sectors considered sensitive by the Canadian government.

Nevertheless, no foreign country’s investors are exempt from the ICA’s national security provisions. This data shows only that investors based in Western countries or countries with free trade relationships with Canada have been less likely to undergo extended national security reviews.

In the amendments to the ICA assented to on 22 June 2017, lawmakers amended the Act’s annual report provision to require information on the exercise of ministerial national security review powers under Part IV.1, notably, data on national security reviews, as summarized in the table below:

The data contained in these industry reports shows that from fiscal year 2009–10 through 2024–25, there were 173 notices under section 25.2, and 105 orders for review under section 25.3. The majority of these reviews (65 of 105) involved Chinese investors. In the most recent reported year, 2024–25, there were 30 extended national security reviews — the second-highest number reported — but only 16 proceeded to section 25.3 orders.²

Those 16 matters — of which, as described above, 11 involved Chinese investors — resulted in 4 no-further-action outcomes, six undertakings-based resolutions, five withdrawals and one divestiture order for an investment that was later permitted. 

Importantly, the prevalence of section 25.2 notices increased dramatically after 2019: from the 2009–10 to 2018–19 reporting periods, only 28 such notices were issued. From 2019–20 to 2024–25, 145 such notices were issued. The data also shows that since 2009, there were 27 final Governor in Council orders under section 25.4.³

Net benefit: evolving international trade status thresholds

The ICA, in its original form, predated the 1995 Marrakesh Agreement and the establishment of the World Trade Organization (WTO). Initially, the ICA distinguished between “Canadian” and “non-Canadian” investors, with no preferential treatment for investors in jurisdictions benefitting from early trade treaties with Canada (for example, the United Kingdom).

US entities gained preferential net benefit review limits in 1988 further to Canada’s passing of the Canada-United States Free Trade Agreement Implementation Act. This legislation amended the ICA by introducing section 14.1, allowing US investors — and acquisitions of Canadian businesses controlled by US parents — to benefit from thresholds higher than the ICA’s original CA$5m and CA$50m net benefit review thresholds, as well as exempting some transactions from net benefit review altogether.⁴

These privileges were later extended to WTO investors, and acquisitions of Canadian businesses controlled by WTO-member parents, with the coming into force of Canada’s An Act to implement the Agreement Establishing the World Trade Organization in 1995 (enacted in 1994). Today, nearly all states and customs territories are WTO members, meaning this measure substantially reduces the reach of the ICA’s net benefit review conditions. For the 2026 calendar year, the WTO threshold is CA$1.452b in enterprise value. This WTO threshold does not extend to SOE investors. 

Canada later granted even more preferential investment thresholds to its free trade agreement (FTA) beneficiaries.⁵ These thresholds were introduced upon Canada’s implementation of the Comprehensive Economic and Trade Agreement between Canada and the European Union, which created a new category of trade agreement investors under the ICA.⁶ For the 2026 calendar year, the FTA threshold is CA$2.179b in enterprise value. This threshold also does not extend to SOE investors.

SOE investors: stricter and stricter reviews from 2007 to 2024

Unique thresholds applicable to WTO SOE investors came into force on 14 April 2015. The SOE threshold for the 2026 calendar year is CA$578m. 

In addition to addressing national security reviews, the Wilson report also touched on foreign state-owned enterprises (SOEs), acknowledging the Minister’s 7 December 2007 clarification of the ICA’s application to SOEs (2007 SOE guidance). This guidance, further to section 38 of the ICA, which empowers the Minister of Industry to release guidelines or interpretation notes clarifying how the Act is applied, describes the SOE’s commercial orientation, governance priorities and offtake agenda as key factors in determining whether an investment is of net benefit under s. 20 of the Act:

“… the Minister will assess whether a Canadian business to be acquired by a non-Canadian that is an SOE will continue to have the ability to operate on a commercial basis regarding:

• Where to export
• Where to process
• The participation of Canadians in its operations in Canada and elsewhere
• Support of ongoing innovation, research and development
• The appropriate level of capital expenditures to maintain the Canadian business in a globally competitive position”

This ministerial guidance evolved again on 7 December 2012, with an announcement by the Minister of Industry (2012 SOE guidance). This announcement clarified that, while noncontrolling minority interests in Canadian businesses by SOEs were welcome, acquisitions of control in Canadian oil sands by foreign SOEs would only proceed “on an exceptional basis.” This was the first guidance on net benefit review of SOE investments since the Wilson Report. 

The drafters of this revised 2012 guidance broadened the 2007 SOE guidance by expanding the definition of an SOE from one “owned or controlled” by a foreign government to one “owned, controlled or influenced” by a foreign state. They also noted that SOEs are inherently susceptible to foreign government influence. 

Compared with the 2007 guidance, which valued “commitments to transparency and disclosure” and “an ability to operate on a commercial basis,” the 2012 guidance required investors to demonstrate a “strong commitment to transparent and commercial operations.” 

The drafters further noted that the Minister would assess, in evaluating the SOE’s likelihood to operate on a commercial basis, “the impact of the investment on productivity and industrial efficiency in Canada.” 

The drafters of the 2012 guidance also explicitly noted “adherence to free market principles” as a detail to be examined during review of the factors enumerated in s. 20 of the ICA. Practically, the 2012 revisions broadened the ambit of reviewable state influence and allowed for a deeper inquiry into nonmarket behaviour and the likely economic consequences of SOE control in Canada. These guidelines were subsequently retired, based on web archives, 

Scrutiny of investments by foreign SOEs was tightened further in 2022 and later in 2024. First came the issuance, on 28 October 2022, of the “Policy Regarding Foreign Investments from State-Owned Enterprises in Critical Minerals under the ICA” (2022 SOE policy). The drafters of this policy clarified that foreign SOE investments in Canadian critical minerals businesses would be considered of net benefit only “on an exceptional basis,” mirroring the language in the 2012 SOE guidance reserved for oil sands investments. 

In the 2022 SOE policy, investors from the PRC influenced by SOEs, or even private investors affiliated with SOEs, are identified as requiring special scrutiny when involved in critical minerals transactions. The drafters of the 2022 SOE policy noted that:

“… some investments into Canada by SOEs can be motivated by non-commercial imperatives that are contrary to Canada’s interests. This includes investments from private investors assessed as being closely tied to, subject to influence from, or who could be compelled to comply with extrajudicial direction from foreign governments, particularly non-likeminded governments.”

The drafters of the 2022 SOE policy, unlike the 2012 SOE guidance, explicitly tie SOEs to national security. The 2022 SOE policy notes that “participation [of an SOE investor] involving a Canadian business… operating in a Critical Minerals sector in Canada will support a finding by the Minister that there are reasonable grounds to believe that the investment could be injurious to Canada’s national security….” 

This stance partially mirrors that in the 24 March 2021 “Guidelines on the National Security Review of Investments” (2021 national security review guidelines), which reads: “… some investments into Canada by state-owned enterprises may be motivated by non-commercial imperatives that could harm Canada’s national security.” 

The drafters of revisions to the 2021 national security review guidelines in 2025 further highlight the “potential to undermine Canada’s economic security through enhanced integration with the economy, or any sector of it, of a foreign state.”

After the 2022 SOE Policy came the “Ministerial Statement on Net Benefit Reviews of Canadian Critical Minerals Companies” on 4 July 2024 (2024 critical minerals statement). While not explicitly addressed to SOEs, the Minister stated that transactions involving “important Canadian mining companies engaged in significant critical minerals operations” would henceforth only be considered to be of net benefit “in the most exceptional of circumstances,” a higher standard than “on an exceptional basis.”

Discretionary net benefit review may soon saddle SOE investors

Despite evolving ministerial guidance concerning investments involving SOE investors (or private investors with ties to SOEs) since 2007, “SOE” was not explicitly defined under the ICA until amendments in 2013. 

From the 2007 SOE guidance to the 2024 critical minerals statement, though the latter is not explicitly addressed at SOEs, the guidelines and policies explored above are mostly described as applying to net benefit review, not national security reviews. By way of reminder, the 2026 calendar year SOE threshold is CA$578m. 

However, pending ICA amendments, enacted in 2024 under Bill C-34 but not yet in force, could make SOE investments reviewable on a discretionary net benefit basis even if the applicable financial threshold is not met. 

Proposed subsection 15(2) provides that, despite the limits in subsections 14(3), 14.1(1), 14.1(1.1) and 14.11(1)–(2), the federal cabinet may initiate a net benefit review for an investment from an entity that is an SOE or is controlled by an SOE with a safe harbour for SOEs hailing from trade agreement beneficiaries. Namely, the Governor in Council, on the Minister’s recommendation, would review such investments upon concluding that a review is in the public interest. The amendments also clarify the applicability of national security reviews to asset acquisitions by SOEs: “to acquire any of the assets of a Canadian business” in a new paragraph 25.1(1)(b.1).⁷

In other words, while the guidance above on evaluating SOE investments was designed to only come into play for large transactions that exceed the SOE’s net benefit review threshold, coming changes to the ICA could allow the GIC to require SOE investors to demonstrate the investment to be of net benefit under these guidelines even when the transaction does not meet the SOE threshold. 

While draft regulations on amendments to the ICA were slated for release by the end of June 2026 for a 60-day public comment period, they have not yet been released. Natural Resources Canada did, however, solicit public comments from 29 June 2026 to 14 August 2026 with regard to an updated Canadian Critical Minerals Strategy.

Notifications

Beyond net benefit and national security reviews, notification is required under the ICA for investment transactions in which a non-Canadian acquires control of or establishes a “Canadian business.”⁸

Such notifications are generally required even when the acquisition falls below the applicable net benefit review threshold.

Under pending amendments to the ICA, enacted in 2024 under Bill C-34 but not yet in force, the Minister will soon wield streamlined powers to seek court orders to enforce penalties of up to CA$50,000 per day against entities for failure to file notifications or applications for net benefit review. 

Initially, the Minister was required to first send the investor a demand before making such an application for a court order. Under the proposed amendment to paragraph 40(a), the Minister will now have the option of making a court application before issuing such a demand.

Pro-investment measures

The Invest in Canada Hub (Invest in Canada), whose core responsibility is attracting foreign direct investment, was established in 2017 via an act of Parliament. Invest in Canada’s current Chair (a former Ambassador to the People’s Republic of China) was appointed on 31 August 2026. At the time of writing, Invest in Canada’s board of directors is vacant except for the current Chair and the outgoing Chair (sitting as a director). It is expected that further changes to Invest in Canada will coincide with or build on Canada’s other investment attraction priorities, including the Invest in Canada Summit, slated for 14–15 September 2026, the initiatives of the Major Projects Office and, more generally, measures under the Building Canada Act.

These measures take place alongside a wider recalibration of Canada’s trade and investment relationship with the PRC. In particular, Prime Minister Carney’s New Strategic Partnership, announced during his visit to Beijing on 16 January 2026, invites Chinese investment in Canada’s energy, clean energy and technology, agrifood and other sectors.⁹

This recalibration was followed by a series of senior-level engagements: Finance Minister François-Philippe Champagne visited China in March and April 2026 to advance economic and financial ties, International Trade Minister Maninder Sidhu travelled to Haikou and Guangzhou in April 2026 to promote Canadian export and investment opportunities, and Industry Minister Mélanie Joly visited Shanghai in June 2026 for a four-day visit to China that included meetings with EV manufacturers and stops in Changzhou, Wuxi and Beijing.

In other words, despite a strengthened ICA review toolkit, the Canadian government’s recent pro-investment measures signal a proactive approach to attracting foreign investment, one that maintains the same delicate balancing exercise featured in both the ICA and its precursor, the FIRA, against a rapidly evolving world.