CANADA Trends and Developments Contributed by: Kevin West, Andrea Hill, Priya Ratti and Gabriel Potkidis, SkyLaw
Canada faces a very difficult question when it comes to AI and defence. Prime Minister Mark Carney gave a speech at the World Economic Forum in early 2026 that garnered praise globally for its clear message for “middle powers” to work together in the face of geopolitical threats. On AI, he said that Canada is co- operating with like-minded democracies to ensure that we will not ultimately be forced to choose between “hegemons and hyper-scalers”. Canada is leading the push to build co-operative frameworks on AI so that Canada can access the benefits of AI and shape its deployment. National Security and Competition Concerns With AI AI is pulling regulatory review into the deal-critical path. On foreign investment, Canada’s updated national security review guidelines expressly incorpo - rate economic security considerations and integrate Canada’s Sensitive Technology List, which includes artificial intelligence and big data technology. The practical effect is that AI‑related transactions, espe - cially those involving sensitive data, know‑how trans - fers, or foreign acquirors, more frequently require early regulatory planning (including filing posture, mitigation planning, covenants, reverse break fees and timing buffers). The Competition Bureau has signalled increased attention to AI and is updating merger enforcement guidance in light of recent Competition Act amend - ments. For data‑driven or platform acquisitions, theo - ries of harm can include foreclosure, increased access to competitively sensitive information, and dampen - ing innovation. The result is a heightened premium on early substantive competition analysis and deal terms While Canada currently lacks a single comprehensive private‑sector AI statute after the demise of the pro - posed Artificial Intelligence and Data Act, governance is shaped by a patchwork of privacy statutes, sectoral regulators, procurement rules and emerging institu - tional guidance. Companies that can produce clean data inventories, governance artefacts and clear con - tracting positions tend to command higher valuations and fewer closing conditions. that realistically allocate regulatory risk. Regulatory Risks in AI Transactions
Privacy regimes can be particularly material. In Québec, Law 25 heightens expectations for transpar - ency and governance, including requirements linked to decisions based exclusively on automated pro - cessing using personal information. This can become a diligence focal point for national businesses with Québec operations and for AI products deployed in employment, credit, eligibility or pricing contexts. The Need for Data Centres Satya Nadella, CEO of Microsoft, has stated that the performance of its AI models is doubling every six months. These AI models require enormous com - puting power and energy, resulting in overwhelming demand for physical infrastructure and access to energy sources. The need to scale quickly is driving significant demand for infrastructure and energy com - panies. Canada is well positioned to host data centres due to its favourable climate and energy profile, including access to bountiful hydro-electric power. A signifi - cant portion of a data centre’s energy consumption is driven by cooling requirements for servers and equip - ment. Canada’s cooler climate allows operators to rely on ambient air-cooling, substantially reducing energy demand and operating costs. The demand for power sources has energised the nuclear and renewable energy industries. Govern - ments are increasingly permitting small nuclear reac - tors and the premiums previously required for “green” energy have disappeared. AI Will Cut the Need for Labour Dramatically Elon Musk, the founder of Tesla and Space-X, predicts that the economic need for human labour will drop sharply as AI develops, to the point that most jobs could be automated and work becomes optional. This view is impacting how businesses assess their need for labour. Many large technology firms have been laying off significant portions of their work force. Many CEOs have reported that they plan to slow their hiring. Canada reported a surprise loss of 83,900 jobs in February 2026, with the unemployment rate climb - ing.
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