How the Investment Canada Act Amendments Are Changing Private M&A in Canada, Practical 2026 Guide

The 2025–2026 amendments to the Investment Canada Act (ICA) have fundamentally altered the regulatory landscape for M&A in Canada, introducing expanded national security review powers, new pre-notification obligations, and broader scrutiny of minority investments. For in-house counsel, private-equity sponsors, and mid-market deal teams, the practical question is no longer whether the ICA matters to a transaction, it almost certainly does, but how to structure, draft, and close a deal in a regime that now reaches further and moves faster than ever before. This guide delivers a step-by-step playbook covering every stage of the process: from initial jurisdictional analysis and mandatory notification triggers through deal structuring, contract drafting, and mitigation negotiations with Innovation, Science and Economic Development Canada (ISED).

By the end of this article you will have:

• A clear understanding of which 2025–2026 ICA changes affect your deal pipeline and how to triage them.
• An embedded Investment Canada Act checklist covering pre-notification, filing documents, and internal stakeholder mapping.
• Practical deal structuring options, majority, minority, holdco, escrow, with sample clause language and negotiation checkpoints.

Executive Summary, The ICA Changes That Matter for Private M&A

The amendments enacted through 2025 and taking full operational effect in 2026 touch nearly every element of the foreign investment review framework. Deal teams should treat the following changes as the core compliance checklist for any cross-border transaction involving a Canadian target.

• Expanded national security review scope. The definition of activities that may be “injurious to national security” now expressly captures critical minerals, artificial intelligence, quantum computing, sensitive personal data, and critical infrastructure. Action item: map the target’s business lines against the expanded list before signing a letter of intent.
• Mandatory pre-notification for prescribed sectors. Certain investments in designated sectors now require a pre-notification filing before closing, even where the transaction does not otherwise trigger a full “net benefit” review. Action item: build a pre-notification timeline into every deal schedule.
• Broadened treatment of minority investments. Investments below the traditional “control” threshold may now be reviewable where the investor acquires board representation, veto rights over strategic decisions, or access to sensitive technology or data. Action item: review governance rights in term sheets for control look-through risks.
• Increased review thresholds for standard transactions. The enterprise-value thresholds for mandatory “net benefit” review have been adjusted upward for WTO investors, as confirmed by ISED and outlined in guidance published by Norton Rose Fulbright and McMillan. Action item: recalculate whether a standard review obligation applies at the new levels.
• Strengthened enforcement powers. ISED now has expanded authority to impose interim conditions, accept binding undertakings, and order divestiture where national security concerns are identified post-closing. Action item: include divestiture-risk allocation provisions in the SPA.

ICA Basics for Private M&A in Canada: Notifications, Thresholds, and Jurisdictional Triggers

The Investment Canada Act applies to any acquisition of control of a “Canadian business” by a “non-Canadian.” Understanding when and how the ICA is triggered is the essential first step in any foreign investment review analysis. As set out in the official ISED guidance, control is generally presumed where a non-Canadian acquires a majority of voting shares of a corporation or substantially all of the assets used in carrying on a Canadian business.

WTO investor vs non-WTO investor

The ICA distinguishes between investors from World Trade Organization (WTO) member states and those from non-WTO states. WTO investors benefit from higher review thresholds and a more streamlined notification process. Non-WTO investors and state-owned enterprises face lower thresholds and additional scrutiny. The precise enterprise-value thresholds are adjusted annually; for 2026, ISED has published updated figures that reflect the economy’s growth trajectory, as noted in commentary from McMillan and Norton Rose Fulbright.

Share vs asset deals

Both share purchases and asset acquisitions can trigger ICA obligations. A share purchase that results in acquisition of control of the Canadian entity is the most straightforward trigger. Asset deals are reviewable where the purchaser acquires substantially all of the assets of a Canadian business. In practice, asset carve-outs and partial dispositions must be analysed carefully to determine whether the “substantially all” test is met.

Cultural sector and state-owned enterprise carve-outs

Investments in cultural businesses (publishing, film, music) remain subject to a separate, lower review threshold regime under the ICA. Acquisitions by state-owned enterprises attract heightened scrutiny at any value level and are subject to additional “net benefit” factors, including governance independence and commercial orientation.

National Security Review Under the Amended Investment Canada Act, Triggers, Scope, and Timelines

The national security review provisions are, in practical terms, the most consequential element of the ICA for private M&A in Canada. Unlike the “net benefit” review, which applies only above specified thresholds and is generally resolved through undertakings, a national security review can be initiated for any investment by a non-Canadian, regardless of value, and can result in an outright prohibition or a mandatory divestiture order.

Expanded triggers and sector focus

Under the 2025–2026 amendments, the Governor in Council’s authority to order a national security review now expressly encompasses investments that could provide a foreign entity with access to critical minerals supply chains, advanced computing (including artificial intelligence and quantum technologies), sensitive personal data of Canadians, critical infrastructure (energy, telecommunications, transportation), and defence and dual-use technologies. ISED guidance materials confirm that these categories reflect Canada’s alignment with allied screening frameworks, including those of the United States (CFIUS) and the European Union’s FDI Screening Regulation.

The review process, step by step

The national security review process under the ICA follows a staged timeline, as outlined on the official ISED Investment Canada Act page:

1. Initial assessment (up to 45 days). After a notification or application for review is filed, the Minister has up to 45 days to determine whether to send the investment for a full national security review. During this period, ISED may request additional information from the investor or the Canadian business.
2. National security review order (up to 45 additional days, extendable). If the Minister refers the investment to a national security review, the Governor in Council has up to 45 days, extendable by a further 45 days, to make a determination. In practice, extensions are common for complex transactions.
3. Final determination. The Governor in Council may approve the investment (with or without conditions), order the investor not to proceed, or require divestiture of a completed investment. There is limited judicial review of these decisions.

Industry observers expect that the practical timeline for a contested national security review, from filing to final determination, is now routinely 120 to 200 days, and deal teams should model accordingly. Building this window into the SPA’s outside date and conditionality provisions is no longer optional; it is a baseline requirement for any cross-border acquisition of a Canadian target with sensitive-sector exposure.

Risks of non-compliance, penalties, orders, divestiture risk

Failing to file a mandatory notification, or proceeding to close before clearance is obtained, can result in administrative monetary penalties, court-ordered injunctions, and, in the most serious cases, mandatory divestiture. The 2025–2026 amendments also introduce the possibility of interim orders freezing the transaction pending review, which can create significant commercial disruption and reputational risk for both buyer and seller.

Pre-Notification and Notification Procedure, Practical Investment Canada Act Checklist

Whether a transaction requires a mandatory notification, a voluntary pre-notification, or a full application for review depends on the nature of the investor, the value of the transaction, and the sector of the Canadian business. The pre-notification regime introduced by the 2026 regulations now requires investors in prescribed sectors to file before closing, even for transactions that would not otherwise meet the “net benefit” review thresholds. The notification forms are available on the ISED Investment Canada Act website.

Step-by-step pre-notification checklist

The following checklist covers the key documents and actions needed to prepare a pre-notification or notification filing:

Key practical point: the ISED FAQ page confirms that the notification form can be filed electronically and that ISED encourages early, informal engagement where a transaction may raise national security questions. Experienced deal teams routinely contact ISED on a no-names basis before filing to gauge the likely scope of review.

Deal Structuring Playbook for Private M&A Under the Investment Canada Act

How a transaction is structured can materially affect whether it triggers a national security review, how long that review takes, and what mitigation undertakings the Government demands. The following playbook covers the four most common structuring options for cross-border private M&A in Canada, along with their practical advantages and risks.

Majority acquisitions, conditionality vs pre-closing approvals

For a standard acquisition of control, the primary structuring decision is whether to condition closing on ICA clearance or to seek pre-closing approval. Conditioning closing is the safer approach: the SPA includes a condition precedent requiring ICA clearance (or the expiry of applicable review periods without the Minister taking action), and closing does not occur until the condition is satisfied or waived. The alternative, seeking to close before or simultaneously with clearance, carries significant risk under the amended regime, particularly where the target operates in a prescribed sector.

Sample conditionality clause language:

“Closing shall be conditional upon the receipt of clearance under the Investment Canada Act, or the expiry of all applicable review periods under Part IV.1 of the Act without the Minister having sent a notice under subsection 25.2(1), whichever occurs first.”

Minority investments, board rights, vetoes, and “de facto control”

The 2025–2026 amendments significantly expand the ICA’s reach over minority investments. An investment that does not confer legal control may still be reviewable if the investor obtains governance rights that amount to “de facto control” or that provide access to sensitive technology, data, or strategic decision-making. Indicia of de facto control include board appointment rights, veto powers over material business decisions (such as budget approval, senior management appointments, or IP licensing), access to proprietary technology or sensitive personal data, and the right to appoint observers to operational committees.

Deal teams structuring minority investments should perform a “control look-through” analysis at the term sheet stage. If the proposed governance rights could be characterised as conferring de facto control or meaningful access to sensitive assets, a voluntary pre-notification filing is strongly advisable. In some cases, reducing the scope of governance rights, for example, replacing a board appointment right with a board observer right without access to confidential materials, can take the investment outside the amended ICA’s expanded reach.

Holdco and jurisdictional layering, when it helps and when it doesn’t

Interposing a Canadian or third-country holding company between the foreign investor and the Canadian target does not, by itself, eliminate ICA obligations. The ICA looks through corporate structures to identify the ultimate non-Canadian acquirer. However, holdco structuring can be useful for several purposes: ringfencing sensitive assets in a separate Canadian-controlled entity, facilitating mitigation undertakings (such as localisation of data or appointment of independent directors), and enabling phased closings where different components of the transaction carry different levels of regulatory risk.

The critical point is that jurisdictional layering must be substantive, ISED and the Minister will disregard structures that are designed solely to circumvent the ICA’s notification or review requirements.

Escrow, earn-out, and step-in protections

Where an ICA review is anticipated, the transaction structure should include mechanisms to manage the timing risk between signing and closing. Common approaches include placing a portion of the purchase price in escrow pending clearance, structuring earn-out payments that are triggered only after ICA approval is received, building a “step-in” right that allows the buyer to assume operational control progressively as regulatory approvals are obtained, and including a reverse break fee payable by the buyer if the transaction fails due to an ICA prohibition or national security order.

Each of these mechanisms has implications for deal economics, tax treatment, and risk allocation. The SPA should address them explicitly, with careful cross-referencing to the ICA conditionality and termination provisions.

Contractual Protections: Representations, Covenants, Conditionality, and Termination Mechanics

Beyond structuring, the SPA, shareholders’ agreement (SHA), or subscription agreement should include a suite of ICA-specific provisions designed to allocate regulatory risk, facilitate the filing process, and provide exit ramps if the investment is blocked. The following drafting checklist covers the essential elements.

• ICA representations and warranties. The seller should represent that it has disclosed all information material to the ICA filing, that the Canadian business does not operate in additional prescribed sectors beyond those disclosed, and that no prior ICA undertakings or orders restrict the transaction. The buyer should represent its ownership structure, country of incorporation, and any state-owned enterprise affiliations.
• Cooperation covenants. Both parties should covenant to cooperate fully with each other and with ISED in preparing and filing the notification, responding to information requests, and negotiating mitigation undertakings. The covenant should specify timelines for delivering information, identify permitted contacts with ISED, and allocate the cost of regulatory advisors.
• Conditionality and outside date. The condition precedent should specify what constitutes “ICA clearance”, whether it is the receipt of a no-action letter, the expiry of all review periods, or affirmative Ministerial approval. The outside date must be long enough to accommodate a full national security review, including extensions; early indications suggest that a minimum of 180 to 240 days between signing and the longstop date is now prudent for sensitive-sector deals.
• Reverse break fee. If the transaction fails due to an ICA prohibition or a national security order, the buyer may be required to pay a reverse break fee to compensate the seller for deal costs and the opportunity cost of the exclusivity period. Market practice for reverse break fees in ICA-sensitive deals ranges from 3% to 6% of enterprise value.
• Material adverse change carve-out. The MAC definition should carve out changes arising from the ICA review process itself, for example, public disclosure of the review, interim conditions imposed by the Minister, or the passage of time between signing and closing.
• Completion certification. The SPA should include a mechanism for certifying that all ICA conditions have been satisfied before funds flow, typically through a closing certificate issued by external counsel confirming that the applicable review period has expired or clearance has been received.

Mitigation Strategies and Negotiating with ISED, Undertakings and Consent Conditions

Where ISED identifies national security concerns but the transaction is not outright prohibited, the Government will typically negotiate mitigation undertakings with the investor. These are legally binding commitments that form a condition of the investment being approved. The negotiation of these undertakings is a critical phase of the deal process and can significantly affect the commercial viability of the investment.

Typical mitigation undertakings observed in recent transactions and referenced in practitioner commentary from Osler and Norton Rose Fulbright include:

• Data localisation. Requiring that sensitive personal data of Canadians or classified government data be stored and processed exclusively in Canada, with access restricted to security-cleared Canadian personnel.
• Governance firewalling. Appointing independent Canadian-resident directors to the board of the Canadian business, with exclusive authority over national security-sensitive matters, and restricting the foreign investor’s access to certain board materials and operational information.
• Technology access restrictions. Limiting the foreign investor’s ability to transfer, license, or access proprietary technology, source code, or trade secrets of the Canadian business outside of Canada.
• Supply chain commitments. Maintaining existing Canadian supply chain relationships for critical inputs, or committing not to redirect production or capacity to foreign jurisdictions.
• Reporting and audit obligations. Agreeing to periodic compliance reporting to ISED and consenting to government audits of the undertakings’ implementation.

The likely practical effect of these undertakings is to increase the cost and complexity of the transaction, and deal teams should model their impact on integration plans, operational synergies, and post-closing governance from the outset. Attempting to negotiate mitigation strategies after concerns are raised, rather than proactively proposing them at the pre-notification stage, typically results in more onerous conditions and longer review timelines.

What to Do If You Receive a National Security Notice or a Divestiture Order

Receiving a national security review notice under the ICA, or, in the most serious cases, a divestiture order, is a high-stakes event that requires immediate, coordinated action. The following steps should be taken without delay:

• Engage specialised counsel immediately. Retain or activate experienced ICA counsel who can manage communications with ISED and advise on the legal options, including any basis for challenging the scope of the review or the proportionality of the order.
• Preserve all documents and communications. Implement a litigation hold covering all documents, emails, and records related to the transaction and the Canadian business. ISED may request extensive document production during the review.
• Activate escrow and holdback provisions. If the SPA includes escrow or holdback mechanisms triggered by a national security review, notify the escrow agent and ensure that the contractual mechanics are followed precisely.
• Assess alternative transaction structures. In some cases, it may be possible to restructure the transaction, for example, by reducing the stake, eliminating sensitive governance rights, or carving out sensitive assets, to address the Government’s concerns and avoid a prohibition or divestiture order.
• Engage with ISED proactively. Cooperate fully with information requests and signal a willingness to negotiate mitigation undertakings. The Government’s stated preference, as reflected in the ISED FAQ, is to resolve concerns through negotiated conditions rather than outright prohibitions, but this preference depends on the investor’s cooperation and good faith.

Conclusion, Key Actions for Deal Teams Navigating the Investment Canada Act in M&A

The 2025–2026 amendments to the Investment Canada Act have made regulatory clearance a central deal risk for any cross-border private M&A transaction involving a Canadian target. Deal teams should treat ICA compliance not as a post-signing afterthought but as a structuring and drafting priority from the earliest stages of transaction planning. Map the target’s sector exposure against the expanded national security categories before signing a letter of intent. Build pre-notification timelines and national security review windows into the deal schedule and SPA conditionality provisions. Perform a control look-through analysis for every minority investment. Proactively propose mitigation undertakings rather than waiting for ISED to dictate terms.

Navigating the Investment Canada Act in M&A across Canada demands early engagement with specialised counsel, disciplined use of the compliance checklist outlined above, and a structuring approach that treats regulatory risk as a first-order deal variable.

Sources

1. Innovation, Science and Economic Development Canada, Investment Canada Act
2. ISED: Investment Canada Act, Frequently Asked Questions
3. Norton Rose Fulbright, 2026 Thresholds for Review: Investment Canada Act
4. McMillan, Canada’s Merger Notification and Investment Canada Act Review Thresholds in 2026
5. Osler, Investment Canada Act and Competition Act Quick Reference
6. Mross, What the Investment Canada Act Means for Your Acquisition