Foreign investments that involve the establishment of a new Canadian business or the acquisition of control of an existing Canadian business require notification and/or review under the Investment Canada Act. Acquisitions of control that exceed certain monetary thresholds are subject to review by the Canadian government, which almost always requires the filing of a pre-closing application for review with the relevant minister. Reviewable investments must be approved on the basis that the investment is likely to be of net benefit to Canada. The Minister of Canadian Heritage oversees investments in "cultural businesses" and the Minister of Innovation, Science and Industry (the "Minister") has carriage of all other investment reviews and notifications. The relevant monetary thresholds that determine whether an investment is subject to review and requires Ministerial approval differ depending on several factors, including the nature of the investor, the structure of the transaction, and the type of Canadian business being acquired. The Minister also has additional powers to review any investments (regardless of whether they involve an acquisition of control) based on national security grounds if the Minister has reasonable grounds to believe that an investment could be injurious to national security.

The Canadian foreign investment regime is focused on both Canadian industrial policy and national security. In recent years, national security reviews have made up an increasing share of foreign investment reviews and enforcement action. Every acquisition of control over a Canadian business or establishment of a new Canadian business by a non-Canadian requires notification to the Canadian government, regardless of value. This notification requires the investor to answer detailed questions about its "ultimate controller" and to disclose information about ownership interests by state-owned investors, even where such ownership interests are indirect and passive in nature. The notification process is, at least in part, a screening mechanism to assess national security risk. On industrial policy, where investment is subject to a review an investor is required to demonstrate that the investment is of "net benefit" to Canada, and approval of the transaction is ultimately a political decision. Demonstrating a "net benefit" to Canada often requires the investor to make binding undertakings to the Canadian government, such as undertakings relating to employment levels in Canada, capital expenditures in Canada, and Canadian content. Finally, for a review of an acquisition of a cultural business by the Minister of Canadian Heritage, investors may be required to agree to undertakings specifically related to Canadian cultural policies and priorities, for example, commitments to provide charitable contributions to cultural institutions or invest in the production or distribution of Canadian cultural products.

The Investment Canada Act applies to all investments by "non-Canadians". Whether a person, government, agency, or entity is a non-Canadian depends on whether the entity is controlled or beneficially owned by a Canadian or a foreigner. A "non-Canadian" includes all entities controlled outside of Canada, regardless of what country the investor originates from. However, higher thresholds for review apply to investments by investors originating from World Trade Organisation member states (a "WTO Investor"), one of Canada’s trade partners (a "Trade Agreement Investor") or an Investor resident in a WTO-member country.

Investments in all sectors are subject to potential notification and review requirements under the Investment Canada Act. However, as will be discussed in question five, certain cultural sector investments will be subject to significantly lower thresholds for review, while all investments involving potential national security issues (very broadly defined) will be looked at to determine whether a national security review should be initiated.

There is no monetary threshold for the requirement for a non-Canadian to submit a notification when acquiring control of or establishing a new Canadian business. All such investments must be notified. The thresholds for whether an acquisition of a Canadian business by a non-Canadian will be subject to review depending on various factors, including whether the investment in the Canadian business is direct or indirect (i.e., implemented through an acquisition of a parent company that is a Canadian corporation), whether the investor is a state-owned enterprise, whether the investor is resident in a country that has a trade agreement with Canada or a member of the WTO (with residency based on specific control rules set out in the Investment Canada Act rather than corporate domicile), and whether the transaction involves the acquisition of a "cultural business" as defined in the Investment Canada Act. The monetary threshold for a direct acquisition by a Trade Agreement Investor is C$1.931 billion in "enterprise value" and C$1.287 billion in enterprise value for a WTO Investor. For state-owned enterprises that are WTO or Trade Agreement Investors, the threshold for review is C$512 million in book value of assets. Indirect acquisitions in non-cultural businesses by WTO or Trade Agreement Investors, including state-owned enterprises, are generally not subject to net benefit review regardless of value and only require notification. Acquisitions of cultural businesses are subject to a threshold of C$5 in million book value of assets for a direct acquisition (regardless of the identity of the purchaser) and C$5 million or C$50 million in book value of assets for an indirect acquisition. Investments in a cultural business can also be ordered on a discretionary basis. The lower thresholds applicable to investments in cultural businesses also apply to direct investments by non-WTO investors. The applications of these thresholds are very complex and we recommend that you consult with us to assess how the Investment Canada Act might apply to a specific transaction.

Yes, all investments by a non-Canadian in a Canadian business that are not subject to review are required to file a notification at any time prior to implementation of the investment or within thirty days thereafter.

When the thresholds for review under the Investment Canada Act are exceeded, there is a 45-day mandatory waiting period following certification of the application for review during which time the investment cannot be implemented. The initial 45-day waiting period can be extended by the Minister for an additional 30 days and thereafter if agreed upon between the Minister and the investor. Similarly, where an investor receives a national security notice under the Investment Canada Act prior to closing, the investor is barred from implementing the investment until it receives a further notice stating no order for review or further action will be taken, or an order authorizing the investment is issued. The national security process can take up to 155 days (or longer if extended on consent).

The Canadian government reacted to the COVID-19 pandemic by taking measures to limit the risk of foreign investment into Canada to Canada’s economy and national security, including Canadians’ health and safety. During the COVID-19 pandemic, the Government of Canada issued a temporary policy statement indicating that certain foreign investments would be subject to enhanced scrutiny under the Investment Canada Act, namely (i) investments related to public health or involved in the supply of critical goods and services to Canadians or to the federal government and, (ii) investments by state-owned investors or by private investors closely tied to or subject to direction from foreign governments. This enhanced scrutiny would apply regardless of the investment’s value. While that guidance was intended as a response to COVID-19, the government subsequently released updated Guidelines on the National Security Review of Investments, which incorporated many of the elements of that policy direction. The heightened scrutiny on certain investments in response to COVID-19, therefore, is now entrenched into Canada’s foreign investment regime on an ongoing basis.

There has been a significant shift in recent years in terms of the review of foreign investment, with the bulk of enforcement action driven by reviews of investments that raise national security reviews. In the fiscal year 2022-2023 (April 1, 2022, to March 31, 2023), 32 notices were issued under section 25.2 of the ICA, indicating that a formal national security review of the investment may be made. This is a significant increase over the number of section 25.2 notices issued in 2021-2022 (24). The past two fiscal years reported have cited more than double the number of notices issued in 2019-20, when only ten notices were issued. Of the 32 notices issued in 2022-23, 22 were also subject to a formal national security review. Ten investments were found to require no further action, eight were withdrawn by the investors, three resulted in an order for divestiture of the Canadian business, and one remains ongoing.

At the same time, "net benefit" reviews have decreased as the Canadian government has substantially increased the threshold for review for WTO and Trade Agreement investors over the past several years. The bulk of investments in Canadian businesses originate from investors from Canada’s trading partners, and the vast majority of countries worldwide are members of the WTO, resulting in very high review thresholds of over C$1 billion applying to most investments in Canada. In the 2022-2023 fiscal year, for example, there were 1,010 filings, which included only five applications for review. All five applications for review were approved.

As has been discussed in previous items, there are two grounds under which investment by a non-Canadian can be subject to review: (1) where enumerated monetary thresholds are exceeded, and either the Minister or the Minister of Canadian Heritage must review the investment to determine whether it is of "net benefit" to Canada; or (2) where the Minister has reasonable grounds to believe the investment would be injurious to national security. The statistics published by the Canadian government on foreign investment review do not yet have data covering the past six months, but in the period from October 2021 to December 2021, zero non-cultural investments were reviewed. Likewise, there were zero reviews of cultural investments between July and September 2022. A recent example of enforcement in foreign investment in Canada was the Canadian government’s forced divestiture of three proposed investments in 2022: Sinomine (Hong Kong) Rare Metals Resources Co, Limited was required to divest itself of its investment in Power Metals Corp; Chengze Lithium International Limited was required to divest itself of its investment in Lithium Chile Inc; and Zangge Mining Investment (Chengdu) Co, Ltd was required to divest itself of its investment in Ultra Lithium Inc. These enforcement actions reflect the increased scrutiny given investments critical to Canada's national economy (e.g., critical minerals).

Canadian lawmakers have been working on amendments to Canada's review framework since late 2022, and we expect that Bill C-34: An Act to amend the Investment Canada Act will be passed within the next six months. Expected changes include (1) the creation of a suspensory pre-closing filing requirement and waiting period for investments in prescribed sensitive sectors; (2) Ministerial powers to initiate a national security review and accept undertakings to mitigate national security risk; and (3) authorizing the Minister to publicly disclose certain previously privileged investor information in connection with a national security review.