Investment Canada Act

Definition

The Investment Canada Act (ICA) is a federal legislation in Canada that regulates foreign investment in Canadian businesses. 

What is the Investment Canada Act?

The Investment Canada Act aims to promote and protect Canadian interests by providing a framework for reviewing and approving foreign investments that may have significant economic, industrial, or national security implications. It seeks to strike a balance between attracting foreign capital and ensuring that investments are in the national interest.

Under the Act, the government may review and approve or reject proposed investments based on specified criteria, including the potential economic benefits, net benefit to Canada, and national security considerations.

For proposed investments that exceed certain financial thresholds, the Investment Canada Act requires investors to demonstrate that the investment will be of “net benefit” to Canada. This net benefit test considers factors such as the impact on employment, investment in research and development, and the contribution to Canada’s competitiveness in global markets.

In addition to the net benefit test, the Investment Canada Act authorizes the government to review proposed investments that may raise national security concerns. This review process allows the government to assess and reduce potential risks to Canada’s national security.

The ICA requires certain investors to provide information and reports to the government regarding their investments in Canadian businesses. This helps ensure transparency and accountability in the review process and allows the government to monitor foreign investment trends.

Example of the Investment Canada Act

Imagine a foreign company, ABC Industries, wants to buy a Canadian tech startup, XYZ Tech, for $800 million. The acquisition exceeds the financial threshold and triggers a review under the Act.

As part of the review process, ABC Industries must demonstrate that the acquisition will be of “net benefit” to Canada. Additionally, if the acquisition raises national security concerns, the government may conduct a separate national security review.

If ABC Industries satisfies the requirements of the Investment Canada Act and obtains approval from the government, it can proceed with the acquisition of XYZ Tech.