What Is the Investment Canada Act?

The Investment Canada Act (ICA) is a piece of legislation designed to provide for the review of significant investments made in Canada by non-Canadians in order to ensure they benefit Canada. The Investment Canada Act provides regulations pertaining to non-Canadians who acquire control of existing Canadian businesses, or who establish new Canadian businesses. Such individuals or entities must submit a notification or an application for review under the Investment Canada Act. The Act was intended to signal Canada's openness to new foreign investment.

Understanding the Investment Canada Act (ICA)

As a Canadian federal law, the Investment Canada Act (ICA) governs foreign direct investment within Canada. The act authorizes the Canadian government to prohibit any foreign investments over $299 million (or others of "significant" size, as established by the government) if it is determined that they do not or will not provide a net benefit to Canada. The act went into effect on June 20, 1985, as one of Brian Mulroney's first acts as part of the Progressive Conservative government.

Although many countries actively seek investment from external parties to support economic development, at times, these investments can result in destabilizing economic or political environments. For example, certain vital strategic elements such as national security can be undermined by greater access to foreign investment vehicles. Another common drawback to increased foreign direct investment is the idea of "hot money." Hot money includes the destabilizing effects of a flood on money into and out of a country. As money rushes in, many projects are wasteful and frivolous, as their primary purpose isn't long-term or economic in nature. When money subsequently rushes out, it leaves fragile economies prone to greater instability or crises.

Like most pieces of legislation aimed at encouraging foreign investment, the Investment Canada Act is not without its fair share of dissent. Although the Act isn't used to formally block takeover bids and investment in Canadian entities, its vague mandate does enable diplomats, public representatives and civil servants to informally dissuade investors at times. This creates a sense of government risk among foreign investment analysts, but the scale of impact is difficult to measure and ascertain.