Buying a Canadian Company? What the Investment Canada Act Means for Your Acquisition

Cross‑border mergers and acquisitions between the United States and Canada are common and usually straightforward. But when a U.S. company (or a Canadian company controlled by U.S. investors) purchases a Canadian business, one federal statute almost always comes into play: the Investment Canada Act[1] (the “ICA”).

Understanding how the ICA works and what filings are required can help avoid delays, unexpected risk, and post‑closing compliance issues. This article provides a practical overview of the ICA from the perspective of a U.S. buyer acquiring a Canadian business.

What Is the Investment Canada Act?

The ICA allows the federal government to review certain foreign investments in Canadian businesses to ensure they:

• Are of net benefit to Canada; and
• Do not raise national security concerns.

While the ICA applies to a wide range of investments, the most common application in M&A transactions is the acquisition of control of an existing Canadian business, or the establishment of a new Canadian business, by a non‑Canadian. These transactions will either be reviewable (requiring pre-closing approval) or notifiable (requiring a post-closing filing).

Who Is Considered a “Non‑Canadian”?

The ICA applies when a non-Canadian acquires control of a Canadian business. For ICA purposes, a non‑Canadian includes:

• An individual who is not a Canadian citizen or permanent resident; and
• Any entity (corporation, partnership, trust, joint venture, etc.) that is not controlled or beneficially owned by Canadians.

This means that:

• A U.S. corporation acquiring a Canadian business is a non‑Canadian; and
• A Canadian corporation that is controlled by a U.S. parent may also be treated as a non‑Canadian.

Even if your acquisition company is a Canadian entity, you would not avoid the scrutiny of ICA if ultimate control sits in the U.S.

What Counts as an “Acquisition of Control”?

An ICA filing is generally triggered when a non‑Canadian acquires control of a Canadian business. Control can be acquired in several ways, including:

• Share acquisitions:
  • Control is presumed when a non‑Canadian acquires one‑third or more of the voting shares of a Canadian corporation, although the presumption can be rebutted by evidence that the non-Canadian or group does not have control.
  • Control definitely exists when a non‑Canadian acquires more than half of the voting shares.
• Asset acquisitions:
  • Acquiring all or substantially all of the assets used to carry on a Canadian business.

In other words, even transactions that are not full buyouts can still trigger ICA requirements.

Two Possible ICA Filings: Review vs. Notification

If you are a non-Canadian and you propose to establish a new Canadian business or to acquire an existing Canadian business, then you must either file a notification or an application for review of the investment unless a specific exemption applies under the ICA[2].

Certain transactions may be exempt from the ICA entirely (including certain financings, security interests, internal reorganizations, etc.), but most arm’s‑length acquisitions of Canadian businesses by U.S. buyers will trigger at least a notification requirement. If you believe your transaction may be exempt, or if you are unsure how the ICA applies to your deal, we recommend speaking with us early to confirm the applicable requirements.

If your transaction is not exempt from the ICA, one of the following filing requirements will apply.

1. Notification (Post‑Closing Filing)

Most U.S.–Canada M&A transactions fall into this category.

If the transaction value is below the net benefit threshold (addressed below), any non-Canadian investor who is not otherwise exempt must file a notification, rather than an application for review. Notification must be filed within 30 days after closing.

Notification filings are administrative, but failure to file can still result in penalties and complications.

2. Net Benefit Review (Pre‑Closing Approval)

A net benefit review is required when:

• A non‑Canadian acquires control of a Canadian business; and
• The value of the transaction exceeds the applicable monetary threshold.

For 2026 (indexed annually), the review thresholds for most private‑sector investors are:

• $1.452 billion CAD (enterprise value) for direct acquisitions of control of Canadian businesses by WTO investors[3] that are not state-owned enterprises, or where the Canadian business is controlled by a WTO investor[4].
• $2.179 billion CAD (enterprise value) for acquisitions of control by trade agreement investors (including U.S. investors)[5] that are not state-owned enterprises, or non-trade agreement investors where the Canadian business is controlled by a trade agreement investor[6].

  Additional thresholds include:

• $578 million CAD (asset value) for direct acquisitions of control by WTO investors that are state-owned enterprises[7].
• $5 million dollars (asset value) for direct acquisitions of control by non-WTO investors, or any direct acquisitions of control of cultural businesses[8].
• $50 million dollars (asset value) for indirect transactions by non-WTO investors[9].

If your transaction exceeds the applicable threshold, a net benefit review is required, and an application for review must be filed before closing. The transaction cannot close without ministerial approval.

What Is a “Trade Agreement Investor”?

This term comes up frequently in ICA analysis and often in purchase agreements.

A trade agreement investor is an investor from a country that has a qualifying free trade agreement with Canada, such as the United States, Mexico, Members of the European Union, and other countries with bilateral or multilateral trade agreements. U.S. investors qualify as trade agreement investors under CUSMA (formerly NAFTA).

Being a trade agreement investor generally means higher monetary thresholds before a net benefit review is triggered. For this reason, sellers often require U.S. buyers to represent and warrant in the purchase agreement that they are a trade agreement investor.

What About State‑Owned Enterprises?

ICA treats state‑owned enterprises differently and more strictly. An state-owned enterprise includes a foreign government, or, an entity that is influenced, directly or indirectly, by a foreign state. U.S. private companies are typically not state-owned enterprises, but this is often confirmed explicitly in transaction documents to avoid ambiguity.

Practical Deal Considerations

Although ICA compliance is technically the buyer’s responsibility, sellers are not indifferent to the risk. As a result, share or asset purchase agreements often include:

1. Representations and Warranties - Buyer confirms it is:
   • A trade agreement investor;
   • Not a state‑owned enterprise; and
   • aware of ICA requirements and agrees to comply with all filings and timelines.
2. Indemnities - Buyer indemnifies the seller and the Canadian target company for losses arising from failure to comply with ICA requirements.

These provisions help allocate regulatory risk and protect the Canadian business post‑closing.

Note that even when a transaction is below the net benefit threshold, the federal government can still conduct a national security review. National security reviews can apply to any investment, regardless of size. This risk is fact‑specific and should be assessed early in the transaction process.

Conclusion

For most U.S. buyers acquiring Canadian businesses, the Investment Canada Act is not a deal‑breaker, but it is a deal requirement.

The key is knowing whether the transaction triggers ICA at all, which filing applies (review vs. notification), how trade agreement investor status works, and how to properly allocate risk in the purchase agreement.

With early planning and the right contractual protections, ICA compliance can be handled efficiently and without disrupting the deal timeline.

If you have any questions or would like to discuss how these provisions may impact you or your acquisition, please reach out to any member of our Corporate Commercial Law Group.