The Investment Canada Act (ICA) governs the acquisition of Canadian businesses by foreign investors. When a foreign entity seeks to acquire control of a Canadian business, the transaction may be subject to review if it exceeds certain financial thresholds. For investors who are not members of the World Trade Organization (WTO), these thresholds are CAD 5 million in asset value for direct investments and CAD 50 million for indirect transactions, including investments in cultural businesses as defined in section 14.1(6) of the ICA.

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The concept of "net benefit" is pivotal under the ICA, referring to the advantages that a foreign investment must bring to Canada to be approved. Key factors considered in determining net benefit include:

 

• Economic Impact: The investment's effect on Canadian economic activity, including job creation, resource processing, and use of local components and services (section 20(a)).​

• Canadian Participation: Participation of Canadians in the business, particularly in management and operational roles (section 20(b)).

• Innovation and Productivity: Impact on productivity, industrial efficiency, technological development, and product innovation (section 20(c)).

• Competition: Effect on competition within the Canadian market (section 20(d)).

• Industrial and Cultural Policies: Compatibility with Canada's industrial, economic, and cultural policies (section 20(e)).

• Global Competitiveness: Contribution to Canada's ability to compete globally (section 20(f)).

 

The calculation method for the target Canadian business's value is defined in section 3.1 of the Investment Canada Regulations. This calculation is based on the assets' value as listed in the Canadian business's balance sheet at the end of its last fiscal year before the proposed acquisition.

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National security review is a critical aspect under the ICA. This review can apply to any foreign investment that may pose a risk to Canada's national security, regardless of its value or type. Canadian authorities evaluate investments for potential risks related to foreign interference, cybersecurity threats, and the transfer of sensitive technologies (section 25.3 of the ICA). Factors considered include potential impacts on Canada's defense capabilities, transfer of sensitive technologies, effects on critical infrastructure, and risks of foreign espionage or surveillance.

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Recent amendments to the ICA, such as those introduced by the Modernization of Foreign Investment Review Act (Bill C-34), strengthen these provisions by increasing financial penalties for non-compliance and introducing new protections for sensitive information during judicial reviews. These changes aim to adapt the law to evolving threats and enhance the transparency and efficiency of the regulatory regime.

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To be eligible, the foreign entity must submit an application to Innovation, Science and Economic Development Canada's Investment Review Division. This application must include required information and documentation, such as an assessment of net benefit and a national security review. Approval is then awaited from Canada's Minister of Innovation, Science, and Economic Development.

 

It's important to note that the Canadian government has discretionary power to review, approve, or reject acquisitions based on specified criteria. To ensure compliance with all applicable laws and regulations, consulting legal and financial experts is essential.

 

By implementing these solutions, foreign businesses can demonstrate commitment to Canada's national security and economic interests, thereby increasing the likelihood of approval under the Investment Canada Act.