In forecasting trends in Canadian foreign investment review, our crystal ball is murkier than usual this year with an ever-changing background of economic warfare triggered by US tariffs (the likes of which have not been witnessed in almost a century). Whether this will substantially alter the regulation of investments by non-Canadians in 2025 is not certain but there are clear drawbacks to raising barriers to investment for a country like Canada that relies so heavily on foreign investment. Our assessment of trends includes insights on what might occur over the coming year, including new developments relating to the Investment Canada Act (the ICA), Canada’s foreign investment review law.

Here are the trends to watch for 2025:

I. Closer scrutiny of certain foreign investments

Pre-closing notifications for sensitive business activities

2025 is likely to witness the establishment of a new pre-closing notification regime for investments in Canadian businesses engaged in certain prescribed business activities. Once this new regime is in force, closing of such investments will be suspended until national security clearance is received. (Currently, notifications can be made post closing.)

The new regime will apply not only to acquisitions of control but also to non-controlling investments which are not currently subject to mandatory notification. However, not all such investments would require pre-closing notification. Rather, the requirement would be limited to where the foreign investor would, as a result of the investment, have:

• access to, or could direct the use of, material non-public technical information or material assets; and
• the power to appoint any person with the capacity to direct the business and affairs of the entity (e.g., a member of the board of directors or of senior management) or prescribed special rights with respect to the target entity.

The nature of business activities to be prescribed is not yet clear. These are to be set out in regulations likely to be issued in 2025. The scope of activities to be prescribed by regulation could encompass high-priority areas identified by the Canadian government over the past few years, including critical minerals and their supply chains, highly advanced technologies and companies with sensitive personal data. Alternatively, the government could instead opt to limit pre-closing notification to a narrower set of investments, for example, those that might lead to irreversible harm if closing occurs (e.g., if the transaction resulted in the transfer of intangibles such as IP or know-how). The latter option would significantly lessen the breadth of application of the new pre-closing requirement.

Failure to comply with the pre-investment notification requirement will come with penalties that are substantial. In particular, a court will be able to order penalties not to exceed the greater of CA$500,000 or a prescribed amount (e.g., one related to transaction value). Under the current law, no penalty has been imposed for a failure to make a required filing under the ICA.

Investments from “non-likeminded countries” will be closely scrutinized

We anticipate continued close scrutiny of investments by investors from “non-likeminded”¹ countries such as China, Russia and Iran on national security grounds – both by state-owned entities (SOEs) and private sector investors, particularly those considered subject to home state direction or control.  

Scrutiny of SOE investors from such countries could be enhanced further as a result of an amendment (not yet in force) to the ICA that provides that investments by state-owned entities that fall under the “net benefit to Canada” review thresholds, may still be subject to such review if Cabinet issues an order for such review on the basis of “the public interest.” An exception is made for investors that are trade agreement investors which category does not include China, Russia and other countries with whom Canada does not have a trade agreement. The necessity of having more SOE “net benefit” reviews is not evident given that the national security review for SOE investments provides broad scope to address security concerns. The likely explanation is that the amendment was added as a political response to perceived public concerns about foreign state acquisitions.

II. Broader scrutiny ─ Economic security formally added to national security risk factors

In a move echoing Canada’s response at the start of the COVID pandemic,² the Minister of Innovation, Science and Industry (ISI) bluntly announced, in a statement posted on X on March 5, that Canada’s “economic security is national security.”

With this statement, the Canadian government seems to be suggesting that an investment by a non-Canadian in Canada can be assessed under the ICA’s national security review process on grounds that may approach a “national economic interest” test. The government has the power to screen all foreign investments, whether currently foreign-owned or Canadian-owned, to determine if they are “injurious to Canada’s national security.” The broader the scope of national security the greater the possibility that the federal Cabinet could exercise its power to prohibit an investment or subject its clearance to terms and conditions or to order a divestiture of a transaction that has already closed.

The term “national security” is not defined and has been broadened over the years to apply to supply chains such as critical minerals (effectively an economic concern relating to the green transition, e.g., inputs to electric vehicle batteries) and health care security (during COVID) as well as more traditional national security concerns associated with territorial sovereignty and defence matters. What is new is that the government’s Guidelines on the National Security Review of Investments (the Guidelines) have never formally referred to “economic security” as a risk factor.

Unpacking “economic security”

The Guidelines have been revised to expressly include as a national security risk factor “the potential of the investment to undermine Canada’s economic security through the enhanced integration of the Canadian business with the economy of a foreign state.” The government’s statements indicate a focus on certain types of investments: where such businesses “are important to Canada’s economic resiliency due to their size, their impact on the innovation ecosystem or their place in Canadian supply chains or those of allies on whom we rely, it would run counter to Canada’s interests to allow them to fall victim to this type of behaviour to the detriment of Canada’s economic security.”

Undermining Canada's economic security through the enhanced integration of the Canadian business with the economy of a foreign state could apply to any sector and to an investor from any country. The description and the Minister’s commentary suggests that the government intends to prevent harm to the Canadian economy, businesses and workers from an acquisition (especially an opportunistic one) that leads to businesses in Canada being shut down and/or key operations or assets of Canadian businesses (e.g., manufacturing, research and development, intellectual property, head office functions, R&D) being shifted to a foreign economy.

Such considerations typically arise under the ICA’s current “net benefit to Canada” review. To obtain Ministerial approval for such investments, foreign investors must generally commit to undertakings to meet certain economic metrics such as employment levels, Canadian participation in senior management and capital expenditures in Canada. However, subject to a few exceptions, net benefit to Canada reviews are limited to mega-transactions that hit the ICA’s very high financial thresholds.³ By contrast, national security review applies to any investments, whether controlling or not and no matter the size.

Because of the potential breadth of “economic security,” investments from any country, including US investors, could raise risks. In this connection, the timing of the Minister’s statement on “economic security” is significant: it followed the US government’s imposition of stiff tariffs on all Canadian goods on March 4. In his statement, the Minister refers to the “rapidly shifting trade environment,” as a result of which “some Canadian businesses could see their valuations decline,” making them vulnerable to “opportunistic or predatory investment behaviour by non-Canadians.”

If US investors were subject to more frequent national security reviews, this would be a sharp deviation from past national security screening. Until now, US investors have been viewed as among the most “likeminded” of Canada’s allies and therefore subject to “light touch” reviews under the ICA compared to other countries, especially those viewed as “non-likeminded.” Nevertheless, with calls for “economic autonomy” being voiced by federal political leaders⁴, the government could apply a broader “national interest” view of “economic security” more frequently if Canada-US political relations deteriorated enough to warrant such intervention in the government’s view. Whether this would occur save in exceptional circumstances is questionable. The Canadian government would likely be wary of imposing too many demands or restrictions on US investors given that US investment is the largest source of investment from outside of Canada.⁵

III. More aggressive enforcement in the wake of deterioration in US/Canada economic relations and upcoming federal election?

Decisions under the ICA are made by politicians ─ the ISI Minister in consultation with the Minister of Public Safety or the entire federal Cabinet. Despite this, ICA clearances or approvals under the ICA are generally based upon recommendations of the civil service, with Ministers becoming more involved as the public profile of an investment increases. However, this could conceivably change in the face of aggressive US economic measures against Canada, with investments viewed as high profile or politically sensitive being subject to more aggressive political scrutiny (e.g., rejection or requiring conditions) under the ICA review processes (both “net benefit to Canada” and national security).

Is a change in government likely to result in a huge shift in ICA enforcement? A new government could, in theory, bring differing perspectives on ICA reviews.⁶ However, given the current geo-political environment, it seems likely that any Canadian government, no matter its political stripe, will not wish to be seen as anything but a staunch defender of Canada’s economic interests. As noted above, whether this means that the Canadian government would marshall its powers under the ICA review processes to exert economic leverage is not clear.

On a technical point, it is worth noting that the US itself could trigger more “net benefit to Canada” reviews if it terminated the Canada-US-Mexico Agreement (CUSMA or as it is known in the US, the USMCA) with no agreement replacing it. In that event, US-controlled investors would no longer receive favourable treatment (i.e., lower “net benefit to Canada” review thresholds) as a “trade agreement country.” This could increase the number of US investments subject to that review process.

IV. New sources of investment?

Since its inception, Canada has always benefitted from foreign capital to develop its economy. In a scenario where, due to economic uncertainty, there is less investment from the US or elsewhere, there may be pressure on the government from Canadian businesses and Canadian capital markets to re-visit the national security risk/benefit analysis (depending on a number of factors including the sector, level of interest to be acquired and location of operating assets) of investments originating from investors in countries (such as China) that have consistently been viewed as higher risk.⁷ Whether the Canadian government would be responsive to such pressure is another matter.

If looking for a “made in Canada” solution and in keeping with the surge of Canadian patriotism, Canadian provincial and federal governments may have greater interest in revising the mandates of domestic pension funds to increase investments in Canada⁸. Pursuant to the federal government’s Budget 2024, Stephen Poloz, the former Governor of the Bank of Canada, was tasked with consulting with, among others, pension funds and equity investors on ways to catalyze greater domestic investment opportunities for Canadian pension funds. The government’s Fall Economic Statement 2024 announced that the government is moving forward with a suite of measures to facilitate increased pension fund investment in Canada.⁹ At this point, it is not known whether these measures will continue under the next Canadian government following the election.

V. Conclusion

Given the current chaotic economic climate, predicting trends in Canadian foreign investment review for the coming year is a mug’s game. There is no doubt that foreign investments in sensitive Canadian businesses by investors from non-likeminded countries will be subject to heightened security. The current Canadian government has also signalled that it may choose to modify or reject foreign investments for economic security reasons, especially if Canadian businesses are being picked up at bargain basement prices. However, even if Canada has the tools to restrict foreign investment, the likelihood that the government would routinely erect significant barriers to foreign investment from traditional “friendly” sources such as the US is questionable in view of Canada’s historic need for foreign capital. That said, we are living in fluid and uncertain times where definitive pronouncements have a short lifespan.

Whether you are a non-Canadian investor or a Canadian business, you will need to navigate a fast-changing regulatory environment. Dentons’ Competition and Foreign Investment Review group has the strategic expertise and experience to help you find the best path forward.

Background on the ICA

Under the ICA, all acquisitions of control of Canadian businesses (whether foreign owned or not) by non-Canadians are subject to a filing requirement: either an application for “net benefit to Canada” review or a notification filing. As a result of very high review thresholds,¹⁰ very few acquisitions of control are subject to net benefit to Canada review outside of the cultural sector. Those that do meet the threshold require pre-closing approval by the ISI Minister (the Minister of Canadian Heritage for cultural sector investments). Although the responsible Minister under the ICA has wide discretion to approve or reject investments, historically rejections have been relatively rare and generally foreign acquirors do not have to make commitments that far exceed what they were already planning to do.¹¹ The vast preponderance of foreign investments in Canada fall below the “net benefit” review threshold and accordingly, the most common filing by far is the notification form which may be filed pre or within 30 days post-closing. The notification is more of an administrative formality and applies not only to acquisitions of control but also to the establishment of new Canadian businesses.

The filing of either an application for “net benefit” review or a notification triggers a national security review process and timeline. However, the government may also review non-controlling acquisitions of which it becomes aware through the press or other sources or through a voluntary notification process designed to allow foreign acquirers to obtain national security clearance in advance of closing where an investment raises potential national security concerns. As noted above, the government is also expected to implement this year mandatory pre-closing notification requirements for investments in certain “prescribed business activities.” Such investments would not be able to close until national security clearance is secured.

Given that all investments subject to a filing requirement as well as minority investments are subject to national security screening, national security is now the predominant form of review under the ICA. This is led by the ISI Minister in consultation with the Public Safety Minister and applies to all Canadian investments, large or small, whether acquisitions of control of Canadian businesses, minority investments in Canadian businesses or the establishment of new Canadian businesses. The federal Cabinet has the power to prohibit an investment on national security grounds, to authorize it subject to terms and conditions or to order a remedy such as a divestiture. Pursuant to amendments to the ICA in 2024, the Minister may also approve an investment conditional on commitments from the foreign investor to mitigate national security risks.

For more information on this topic, please reach out to the author, Sandy Walker.

This article is part of the Dentons' Canadian Regulatory Trends to Watch in 2025 series. To read other articles in this series, click here. Stay up-to-date with all insights and guidance from our regulatory team by visiting our Canada Regulatory Review blog.

1. The Canadian Minister of Innovation, Science and Industry used the term “non-likeminded” in 2022 in the context of his statement regarding investments in critical minerals by “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.” See https://ised-isde.canada.ca/site/investment-canada-act/en/policy-regarding-foreign-investments-state-owned-enterprises-critical-minerals-under-investment.↩
2. See https://ised-isde.canada.ca/site/investment-canada-act/en/investment-canada-act/ministerial-statements/policy-statement-foreign-investment-review-and-COVID-19.↩
3. The ICA’s net benefit review thresholds relate to the target size. In 2025, for investments outside of the cultural sector, they are: $1.386 in target enterprise value for investors from World Trade Organization (WTO) countries, $2.079 billion for trade agreement investors such as US or EU controlled investors, and $551 million in target asset value for WTO foreign state investors. ↩
4. See https://www.theglobeandmail.com/politics/article-carney-says-canada-cannot-rely-on-us-any-longer-and-must-achieve/ ↩
5. The US accounted for 51.5% of the total number of investments in Canada in 2023 - 2024 according to the Canadian government, representing 32.4% of total asset value of investments and 43.4% of total enterprise value of investments. See https://ised-isde.canada.ca/site/investment-canada-act/en/home/annual-report-2023-2024#s4. ↩
6. For example, for some investments, national security risks will be clearly viewed as high based on a combination of the investor’s home country (e.g., China, Iran, Russia) and the nature of the target Canadian business (e.g., sensitive technology). For other investments, there may be less certainty about potential harm, and governments with different priorities or perspectives might arrive at different assessments of national security risks.↩
7. See https://www.mining.com/canada-plans-scrutiny-of-chinese-offtake-deals-minister-says-at-pdac/. Also https://mining.com.au/canadas-conflicting-stance-on-chinese-investment-sparks-uncertainty/ ↩
8. For calls on government to fund Canadian companies, see https://financialpost.com/commodities/mining/ottawa-order-china-divest-miners-created-uncertainty-tsx↩
9. See https://www.canada.ca/en/department-finance/news/2024/12/unlocking-pension-investment-in-canada.html. ↩
10. See footnote 3. ↩
11. Approval depends on the impact of the investments on a range of factors such as employment levels in Canada, capital expenditures in Canada, location of head office functions in Canada, and participation of Canadians in senior management and governance. Foreign investors generally offer the Canadian government binding commitments called “undertakings” relating to these and other factors to obtain Ministerial approval. ↩