Canada’s Strategic Sectors: Foreign Buyer Investment Challenges

Foreign direct investment (FDI) is essential to Canada’s economy, but Ottawa balances openness with protective screening. Investors must understand a two-track reality: Canada broadly welcomes capital, jobs and technology, while exercising targeted scrutiny where national interest, security or strategic sovereignty are at stake. This article explains the legal framework, strategic sectors that attract attention, practical navigation steps, timelines and illustrative cases to help foreign buyers plan transactions that involve Canadian assets.

The legal and institutional framework

• Investment Canada Act (ICA): The ICA governs federal screening of foreign acquisitions of control of Canadian businesses. It includes a traditional “net benefit” review for certain transactions and a separate, threshold-free national security review power. The implementing authority is the federal department responsible for economic development and industry policy.
• Net benefit test vs. national security review: The net benefit test applies to acquisitions above monetary thresholds and evaluates economic benefits to Canada (e.g., investment, employment, R&D). The national security review can be triggered for any investment, regardless of value, if officials believe the transaction could be injurious to national security.
• Provincial and sectoral regulators: Provincial rules and sector-specific regulators also matter. Examples include provincial land ownership or farmland rules, telecommunications licensing and spectrum controls, Fisheries and Oceans for marine infrastructure, and aviation regulators for airport or air-transport assets.
• State-owned enterprises and sensitive parties: Investments by state-owned enterprises or foreign investors with close ties to foreign governments typically attract extra scrutiny and may face more intensive national security analysis.

Which sectors draw the most scrutiny

• Critical minerals and energy: Canada is rich in minerals and hydrocarbons. Acquisitions involving rare earths, lithium, nickel, uranium or major oil and gas infrastructure trigger close attention because of supply-chain implications and strategic value.
• Telecommunications, data and digital infrastructure: Ownership of networks, data centers, and companies holding large volumes of personal or sensitive data is sensitive because of espionage and privacy risks.
• Defense and dual-use technologies: Aerospace, cybersecurity firms, advanced manufacturing and suppliers to the armed forces are high priority for national security screening.
• Transport and critical infrastructure: Ports, rail corridors, bridges and airports have clear national-security or public-safety implications.
• Real estate in sensitive locations: Residential and commercial property near military bases, major infrastructure, or critical government facilities is watched; provinces have imposed taxes or restrictions on foreign residential buyers.
• Food, agriculture and water resources: Control of farmland, processing facilities or food supply chains can be sensitive for food security and provincial policy reasons.

Key practical steps for foreign buyers

• Screen early: Once a target emerges, promptly evaluate whether the transaction meets the ICA net benefit threshold or might fall under a national security review, helping prevent unexpected issues or closing delays.
• Engage Canadian counsel and advisors: Local legal, regulatory and sector experts should guide filing requirements, industry-specific permits, stakeholder expectations and any likely conditions.
• Pre-notification consultations: Leverage confidential pre-notification discussions with the reviewing authority to resolve questions and identify possible national security concerns, which can streamline the formal review process and support mitigation planning.
• Consider deal structure: Structures such as minority stakes, joint ventures or staged acquisitions may avoid net-benefit review thresholds, though national security powers apply regardless of size.
• Prepare mitigation proposals: Be prepared to offer voluntary commitments, including Canadian board participation, pledges to sustain R&D or employment, data localization measures or limited access to specific facilities.
• Coordinate with provincial authorities: Real estate transactions, farmland acquisitions and resource licenses frequently require provincial approvals or registrations.
• Plan for timing and conditionality: Factor regulatory timelines and the possibility of conditions, remedies or divestiture orders into closing strategies and financing arrangements.

Schedules, expenses and anticipated results

• Timelines: Review periods can span from several weeks to many months. Initial assessments by staff are often completed within roughly 30–90 days, while more intricate net-benefit evaluations or national security reviews may stretch well past that window. Lengthy mitigation discussions can further prolong the process. It is prudent to anticipate that regulatory scrutiny will exceed the duration of a standard commercial closing.
• Costs: Fees for legal counsel, advisors and compliance efforts can be significant. When mitigation is imposed, carrying out and supervising required measures (for example, data ring-fencing or establishing Canadian subsidiaries) introduces continuing costs.
• Outcomes: Regulatory decisions may result in unconditional clearance, conditional approval with undertakings, orders to divest, or an outright ban. National security authority has, on occasion, been exercised to stop deals entirely.

Illustrative cases and lessons

• CNOOC’s acquisition of Nexen (2013): A high-value foreign acquisition by a Chinese state-owned enterprise that was approved after a public review. The deal proceeded with commitments aimed at protecting Canadian operations and investments. The case illustrates that state-linked buyers can succeed when they offer clear economic benefits and credible undertakings.
• Blocked transaction: a proposed takeover of a major construction firm (2018): The federal government blocked a takeover of a Canadian infrastructure company by a large foreign state-owned enterprise on national security grounds. The decision shows that infrastructure and construction companies connected to critical projects can trigger enforcement even when the bidder is willing to negotiate mitigations.
• Real-estate and provincial measures: British Columbia and Ontario introduced significant non-resident property taxes and registration requirements in response to housing affordability concerns. These provincial tools demonstrate that even if federal investment rules permit a purchase, local taxes and restrictions may materially affect deal economics.