In Canada, there are a number of federal and provincial statutes that have the effect of controlling foreign investment in specific industries. The Investment Canada Act (the “Act”), a federal statute, however, is the only law of general application that provides for the review and approval of foreign investments.

The Act generally applies to the establishment of new Canadian businesses and to the acquisition of control of existing Canadian businesses by non-Canadians. In most cases, non-Canadian investors are only required to file a notification. However, in some cases, pre-merger approval of the investment based on a “net-benefit to Canada” test is required. The Act also provides for the review of foreign investments that may be injurious to Canada’s national security.

(a) Net Benefit to Canada Review

In general, a transaction that is reviewable may not proceed until approval has been received or is deemed to have been received from the Minister of Canadian Heritage for investments involving cultural businesses and from the Minister of Innovation, Science and Economic Development for all other investments.

The Act sets out six factors that are to be taken into account, where relevant, in assessing net benefit to Canada. They are:

• the effect of the investment on the level and nature of economic activity in Canada;
• the degree and significance of Canadian participation in the Canadian business and in any affected industry in Canada;
• the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada;
• the effect of the investment on competition within any industry in Canada;
• the compatibility of the investment with national industrial, economic and cultural policies, taking into consideration the corresponding policies of any province likely to be significantly affected by the investment; and
• the contribution of the investment to Canada’s ability to compete in world markets.

In general, the threshold for the review of a direct acquisition of control of a Canadian business (other than a Canadian business that is engaged in a cultural business) by a World Trade Organization (“WTO”) investor or where the Canadian business being acquired is controlled by a WTO investor is C$600 million of transaction value (in 2016).

Special review threshold rules apply to investments by state-owned enterprises, investments involving cultural businesses and indirect acquisitions.

(b) National Security Review

An investment may be subject to a “national security” review if the Minister of Innovation, Science and Economic Development  has reasonable grounds to believe that an investment by a non-Canadian could be injurious to Canada’s
national security.

(c) Canadian Foreign Investment Outlook

While the Conservatives were in power, the foreign investment approval process under the Act presented considerable challenges to foreign investors in a number of transactions. It is too early to tell, however, whether the current Liberal government is likely to continue the assertive stance of the Conservative Party, or revert to the historical, more liberal, Liberal approach. In either event, prospective investors are well-advised to take the approval process seriously.