Investment Canada Act Bill C-34 reforms national security review

Bill C-34 (Royal Assent: March 22, 2024) introduced the most significant reforms to Canada's Investment Canada Act in 15 years. Key changes include mandatory pre-closing notifications for sensitive-sector investments, expanded ministerial powers to impose interim conditions and accept binding undertakings, higher penalties (up to CAD $500,000), and new coverage for asset and intellectual property acquisitions.

If you are a foreign investor looking to acquire a Canadian business, or a Canadian business owner receiving foreign investment, the rules governing that transaction have changed in ways that demand attention. Canada's federal government has deliberately expanded its tools to scrutinise, delay, condition, and block inbound foreign investment. Understanding what changed and how the review process works is no longer optional: it is a prerequisite for successful deal planning.

This guide covers both tracks of Canada's foreign investment review regime, explains every major reform introduced by Bill C-34, walks through the national security review process stage by stage, and provides practical guidance for investors working through the updated framework.

What Is the Investment Canada Act?

The Investment Canada Act (RSC, 1985, c. 28) is Canada's primary statute governing inbound foreign investment. It applies to any "non-Canadian" who acquires control of an existing Canadian business or establishes a new one. A non-Canadian, broadly, is a person or entity that is not a Canadian citizen or permanent resident, including companies incorporated outside Canada and Canadian companies controlled by foreign interests.

The Act operates on two parallel tracks:

Net Benefit Review applies to large investments above prescribed financial thresholds. The Minister of Innovation, Science and Industry must be satisfied that the investment is likely to be of "net benefit" to Canada before it can proceed.

National Security Review can apply to any foreign investment, regardless of size or dollar value. The government assesses whether the investment could be injurious to Canada's national security. There is no minimum threshold.

Before Bill C-34 came into force, foreign investors in most sectors only had to notify the government within 30 days after closing. That post-closing approach is changing. One of Bill C-34's central reforms is a mandatory pre-closing notification regime for investments in prescribed sensitive sectors, meaning investors in those sectors will be prohibited from closing until the government's screening window has expired.

The Net Benefit Review: Economic Assessment for Large Deals

The net benefit review applies only once an investment exceeds the applicable financial threshold, which is adjusted annually. For 2025, the direct acquisition thresholds are:

Trade Agreement Investors (non-SOE): CAD $2.079 billion enterprise value
WTO Investors (non-SOE): CAD $1.386 billion enterprise value
WTO State-Owned Enterprises: CAD $551 million asset value
Cultural businesses / Non-WTO investors: CAD $5 million book value

For 2026, the thresholds increase further: Trade Agreement Investors move to $2.179 billion, WTO Investors to $1.452 billion, and WTO SOEs to $578 million. These thresholds are indexed to nominal GDP and rise each year.

When a review is required, the Minister weighs the investment against six statutory factors set out in section 20 of the Act:

Effect on the level and nature of economic activity in Canada, including employment, resource processing, and utilisation of parts, components and services produced in Canada
Degree of participation by Canadians in the Canadian business
Effect on productivity, industrial efficiency, technological development, and product innovation, Bill C-34 expressly added the effect on IP rights whose development was funded (wholly or in part) by the Canadian government to this factor
Effect of the investment on competition within any industry in Canada
Compatibility with national industrial, economic and cultural policies, Bill C-34 expressly added the use and protection of personal information about Canadians to this factor
Contribution to Canada's ability to compete in world markets

Two sectors warrant particular attention. Cultural businesses, including those involved in publishing, broadcasting, and Canadian heritage, face lower thresholds and additional scrutiny at all deal sizes. And since July 2024, the government formally stated that acquisitions of significant Canadian critical minerals operations will only be approved in "the most exceptional of circumstances." Foreign buyers in mining and resources must treat this as an effective prohibition, not a high bar to clear.

State-owned enterprises face heightened scrutiny at any deal size. Private investors assessed as closely tied to or subject to direction from foreign governments are treated similarly.

The National Security Review: How Canada's Broadest Investment Power Works

The national security review under the Investment Canada Act can apply to any foreign investment, regardless of size or dollar value. Unlike the net benefit review, there is no financial floor. A minority stake acquisition, an asset purchase, or even a licensing arrangement for Canadian intellectual property can trigger this review if the government considers the investment potentially injurious to national security.

The review process unfolds in three stages, each with its own 45-day window under the National Security Review of Investments Regulations:

Stage 1, Initial Assessment (up to 45 days after certified filing)

The clock starts when the Minister becomes aware of an investment or upon receipt of a certified notification or application for review. Government officials assess the investment against the national security injury factors. If no concern is identified, the investment proceeds. If the government has reasonable grounds to believe the investment could be injurious to national security, the Minister issues a notice to the investor to trigger Stage 2.

Stage 2, Extended Review (45 days after the notice)

The investor can submit written representations and propose undertakings to address security concerns. Under Bill C-34's provisions that came into force on September 3, 2024, the Minister can now impose interim conditions during this stage, effectively a "hold-separate" order that limits the investor's access to sensitive assets, data, or personnel while the review continues. At the end of Stage 2, the government either clears the investment, clears it subject to undertakings, or refers it to the Governor in Council.

Stage 3, Governor in Council (45 days from the referral order)

If referred, the Governor in Council has broad authority. It can authorise the investment on specified terms and conditions, direct the investor not to implement the investment, or, most significantly, require a non-Canadian who has already closed to divest and wind up the Canadian business. Classified intelligence may be used in these proceedings and withheld from investors in legal challenges, a protection codified by Bill C-34.

In practice, the average national security review in 2023–24 took 163 days, down from 174 days the prior year, but still far beyond the theoretical 135-day maximum. Investors in sensitive sectors should plan accordingly.

The 12 National Security Injury Factors

The March 2025 Guidelines on the National Security Review of Investments set out 12 categories the Minister may consider when assessing whether an investment could be injurious to Canada's national security:

Effects on Canada's defence capabilities and defence industrial base
Potential transfer of sensitive technology or know-how outside Canada
Involvement with goods or technology subject to the Defence Production Act, s. 35
Impact on the supply of critical goods and services to Canadians or government
Impact on critical minerals and critical mineral supply chains
Impact on the security of Canada's critical infrastructure
Potential to undermine Canada's economic security through enhanced integration with a foreign state's economy, added by the March 2025 Guidelines update
Potential to enable foreign surveillance or espionage of Canadians
Potential to hinder Canadian intelligence or law enforcement operations
Impact on Canada's international interests and foreign relationships
Potential involvement with illicit actors, including terrorists or organised crime
Access to sensitive personal data about Canadians (health, biometric, financial, communications, geolocation, or data relating to government officials)

These factors are illustrative, not exhaustive. The government is not limited to the listed categories.

The Sensitive Technology List (released February 6, 2025) is now integrated directly into the Guidelines and replaces the former Annex A. It covers a broad range of technologies with potential security applications: advanced materials, artificial intelligence, biotechnology, energy systems, medical and neurotechnology, quantum science, robotics, sensing and surveillance systems, space technology, and more. Any investment touching these areas receives enhanced attention regardless of the deal's headline value.

What Bill C-34 Changed: The Seven Key Reforms

Bill C-34, officially the National Security Review of Investments Modernization Act, received Royal Assent on March 22, 2024. The first set of provisions came into force on September 3, 2024. Remaining provisions, notably the mandatory pre-closing filing regime, await regulations expected to follow consultation processes that began in 2024.

1. Mandatory Pre-Closing Notifications (Not Yet in Force)

This is the most consequential procedural change for deal planning. Under the existing framework, investors in most sectors notify the government within 30 days after completing the transaction. Bill C-34 will require investors acquiring interests, including minority, non-controlling stakes, in "prescribed sensitive sectors" to file before closing. Investors will be prohibited from completing the transaction until the prescribed screening period expires.

The specific list of prescribed sectors will be set by regulation and is expected to align closely with the Sensitive Technology List. The regulations have not yet been finalised as of the date of this article. Investors in technology, advanced manufacturing, critical minerals, and data-intensive businesses should monitor ISED announcements closely, as this change will fundamentally alter pre-closing timelines once in force.

2. Expanded Ministerial Authority (In Force: September 3, 2024)

The Minister of Innovation, Science and Industry now has significantly broader independent authority. The Minister can:

Launch and extend national security reviews without waiting for Cabinet direction
Accept binding undertakings from investors to mitigate security concerns, and release investors from those undertakings when they are no longer necessary
Impose interim conditions during a national security review, limiting access to sensitive IP, data, or personnel while the review is ongoing
Publicly disclose investor identities in certain circumstances

These changes mean government action is faster and more flexible. For investors, that translates to both risk (faster intervention) and opportunity (quicker resolution when undertakings are well-structured).

3. Expanded Scope: Assets and Intellectual Property (In Force: March 22, 2024)

The ICA's national security provisions now extend to acquisitions of assets, not only acquisitions of control over a Canadian business. This expressly includes intangible assets such as intellectual property. A licensing arrangement or an IP transfer agreement involving Canadian-developed technology now falls within the scope of the national security review regime. For M&A practitioners structuring cross-border transactions, this scope expansion demands a fresh look at deal structures that were previously designed to avoid ICA review thresholds.

4. Higher Penalties (In Force: March 22, 2024)

Daily penalties for general ICA violations have increased from CAD $10,000 to CAD $25,000. Once the mandatory pre-closing filing regime comes into force, a failure to submit the required pre-closing notification will expose the investor to a penalty of up to CAD $500,000. The legislation also permits future penalty increases by regulation, without requiring Parliament to pass a new bill.

5. IP and Personal Data as Explicit Net Benefit Factors (In Force: March 22, 2024)

The net benefit review factors now expressly direct the Minister to consider the effect of an investment on IP rights whose development was funded (wholly or in part) by the Canadian government, and the effect on the use and protection of personal information about Canadians. Investors acquiring Canadian companies that have received government research grants or that hold large Canadians' datasets, particularly in healthcare, fintech, or data analytics, should expect additional scrutiny and be prepared to address these points in their applications.

6. Enhanced Information Sharing (In Force: March 22, 2024)

Canadian authorities may now share investor information with trusted foreign-government counterparts, facilitating coordinated multi-jurisdictional reviews. Investors with operations in multiple allied jurisdictions should ensure their legal and compliance strategies account for the possibility that information filed in Canada may be shared with other screening bodies.

7. Economic Security as a National Security Factor (March 2025 Guidelines)

While not a Bill C-34 amendment per se, the March 2025 update to the National Security Review Guidelines introduced a new factor: the potential of an investment to undermine Canada's economic security through enhanced integration of the Canadian business with the economy of a foreign state. In applying this factor, the government considers the size of the Canadian business, its place in the innovation ecosystem, and the impact on Canadian supply chains. This signals that even commercially benign acquisitions can attract review if they tighten a foreign state's grip on a Canadian industry.

How the Government Is Exercising These Powers: Recent Enforcement

The reforms described above are not hypothetical. Canada has been using its ICA powers aggressively, and the pace has increased.

According to the ISED Annual Report 2024–2025, there were 1,201 applications certified in fiscal year 2023–24, an 18.9% increase from the prior year. Of those, 26 investments underwent extended national security reviews; two resulted in divestiture orders; nine were withdrawn; and 15 were permitted to proceed.

Notable enforcement decisions include:

Bluvec Technologies Inc. (May 2024): Ordered to dissolve its Canadian wireless anti-drone defence business and cease all operations.
Pegauni Technology Inc. (May 2024): Ordered to dissolve its Canadian wireless security products business and cease all operations.
Sinomine / Power Metals Corp.: Ordered to divest following acquisition of a Canadian critical minerals company.
Chengze Lithium International / Lithium Chile Inc.: Ordered to divest under the critical minerals policy.
Hikvision Canada, Inc. (June 27, 2025): Ordered to wind up its Canadian business entirely, a full exit order.

The pattern is clear: investments involving state-linked entities from countries that do not have free trade agreements with Canada, particularly in critical minerals, defence-adjacent technology, and surveillance or communications infrastructure, face the highest probability of adverse outcomes. No investor can assume approval in these sectors.

What Foreign Investors Should Do Going Forward

The cumulative effect of Bill C-34 and the 2025 Guidelines is a more interventionist Canadian foreign investment regime. Here is how to manage it effectively.

Start the ICA analysis before the term sheet. ICA compliance cannot be retrofitted. Whether a mandatory pre-closing notification is required, whether the investment touches a sensitive sector, and whether the deal structure can be modified to reduce review risk, all of these questions are better answered before commercial terms are agreed.

Conduct a sector-based risk assessment. Evaluate whether the target operates in or adjacent to the Sensitive Technology List. Assess whether the target has received government-funded R&D grants, holds significant Canadian personal data, or plays a role in critical infrastructure. Map any connection between the investor and a foreign state, including minority shareholdings, contractual relationships, and regulatory oversight in the investor's home jurisdiction.

Build review timelines into transaction agreements. For any investment with a realistic chance of triggering national security review, deal documents should include ICA regulatory conditions as conditions precedent, with appropriate outside dates that account for at least 163 days (the 2023–24 average) and, in contentious sectors, potentially longer.

Treat undertakings as a deal tool. Under Bill C-34, the Minister can now accept undertakings independently. Proactively identifying security concerns and offering well-crafted, credible undertakings, such as operational restrictions, information-barrier arrangements, or commitments to retain Canadian employment, can significantly improve the odds of approval and accelerate the process.

Prepare for interim conditions. In sensitive sectors, investors should assume that the Minister may impose interim conditions during a review, restricting access to the target's most sensitive assets or data. Operational planning should account for this possibility.

Stay current on the pending regulations. The mandatory pre-closing filing regime is not yet in force. Once the prescribed-sector regulations are published, deal timelines will need to be rebuilt from scratch for investments in those sectors. Monitoring ISED's regulatory consultations is a practical necessity, not just good practice.

Frequently Asked Questions About the Investment Canada Act and Bill C-34

What is the Investment Canada Act?

The Investment Canada Act (RSC, 1985, c. 28) is Canada's federal statute governing all inbound foreign investment. It requires non-Canadians who acquire control of a Canadian business, or establish a new Canadian business, to either notify the government or apply for approval. It has two review tracks: a net benefit review for large investments above prescribed thresholds, and a national security review that applies to any investment regardless of size.

Does the Investment Canada Act apply to all foreign investments?

Yes, with limited exemptions. The national security review can apply to any investment by a non-Canadian, there is no minimum dollar threshold. The net benefit review applies only above the annual financial thresholds, but those thresholds do not protect an investment from the national security stream.

What is the difference between a net benefit review and a national security review under the Investment Canada Act?

A net benefit review assesses whether a large investment offers economic benefits to Canada across six statutory factors: employment, productivity, IP, personal data, cultural compatibility, and international competitiveness. A national security review assesses whether any investment, regardless of size, could harm Canada's security, broadly defined. The two reviews can run in parallel.

How long does an Investment Canada Act national security review take?

The statutory framework provides for three stages of up to 45 days each, for a theoretical maximum of approximately 135 days. In practice, the average duration in 2023–24 was 163 days. Investments in sectors with heightened sensitivity, critical minerals, defence technology, surveillance systems, can take considerably longer.

What did Bill C-34 change about the Investment Canada Act?

Bill C-34 (Royal Assent: March 22, 2024) introduced mandatory pre-closing notifications for sensitive-sector investments (pending regulations), expanded the Minister's authority to impose interim conditions and accept binding undertakings, increased daily penalties to CAD $25,000, introduced a new CAD $500,000 penalty for missed pre-closing filings, extended ICA coverage to asset and IP acquisitions, and added government-funded IP and Canadian personal data as explicit net benefit factors.

What sectors face heightened scrutiny under the Investment Canada Act?

Investments touching critical minerals, the Sensitive Technology List (AI, quantum science, biotechnology, space technology, advanced materials, robotics, and more), defence and dual-use technology, critical infrastructure, and large Canadian personal datasets all attract enhanced scrutiny. Since July 2024, critical minerals acquisitions will only be approved in "the most exceptional of circumstances."

Can the Canadian government block a foreign investment after it closes?

Yes. The Governor in Council can require a non-Canadian investor to divest a Canadian business and wind up its operations, even after the transaction has closed. This is not theoretical: several investors have received divestiture orders following completed transactions. This risk is one of the primary reasons investors must conduct ICA due diligence before closing, not after.

What are "undertakings" under the Investment Canada Act?

Undertakings are legally binding commitments made by a foreign investor to the Canadian government to address national security or net benefit concerns. They may include operational restrictions, employment commitments, R&D spending requirements, or information-barrier arrangements. Under Bill C-34, the Minister of Innovation, Science and Industry can now independently accept undertakings and release investors from undertakings when they are no longer necessary.

Sources & Official Resources

Federal Statutes and Regulations

Government of Canada, Official Sources

This article is for general informational purposes only and does not constitute legal advice. Foreign investment situations are highly fact-specific. Consult a lawyer to assess how Canada's Investment Canada Act applies to your particular transaction.

Contact Hadri Law

If you are a foreign investor evaluating a Canadian acquisition, or a Canadian business owner considering a transaction with an international partner, understanding your obligations under the Investment Canada Act is a critical first step. Hadri Law advises businesses on international business law, cross-border M&A, and Canadian regulatory compliance, including ICA review strategy and undertaking negotiations.

Call (437) 974-2374 for a free consultation. We serve clients in English, French, Spanish, and Catalan.

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