Overview

The Government of Canada has focused significantly on the digital economy, with initiatives such as the 2021 Canada Digital Government Strategy and the 2022 Digital Ambition plan, which present forward-looking, 3-year strategic plans that set out the government-wide priorities and lists key actions that departments and agencies need to transition to a more digital government and to meet the requirements of the Policy on Service and Digital.  The Canadian Digital Charter prioritizes user trust, privacy, and data protection while focusing on sectors like fintech, AI, and clean technology to foster innovation and build a resilient digital infrastructure.  Canada stands out in AI and quantum computing, with cities like Toronto and Montreal serving as hubs for innovation and institutions like the Vector Institute and the University of Waterloo’s Institute for Quantum Computing leading research efforts. Additionally, advancements in digital health technologies are improving healthcare delivery and accessibility. Overall, Canada’s emphasis on research, government support, and a strong startup ecosystem positions it as a leader in these emerging areas of the digital economy.

Projections indicate that Canada’s digital economy will grow at a CAGR of around 9% through 2025, driven by the rapid adoption of e-commerce, investments in AI, and expanded digital payment solutions.  Major players such as Shopify, Lightspeed, and Wealthsimple contribute to this competitive landscape, supported by government efforts to enhance digital skills and aid startups.

Market Challenges

Canada applies various regulatory requirements that U.S. businesses should note, as they may necessitate internal compliance obligations alongside market development opportunities.

Regulatory Environment

Data privacy 

Canada has two federal privacy laws that are enforced by the Privacy Commissioner of Canada: The Privacy Act, which covers how the federal government handles personal information and the Personal Information Protection and Electronic Documents Act (PIPEDA), which regulates how businesses handle personal information.  On June 16, 2022, the Canadian government introduced Bill C-27, the Digital Charter Implementation Act, which will update Canada’s federal privacy sector law, create a tribunal, and propose new rules for artificial intelligence systems.  Some of the most notable changes in the bill include the introduction of a new Personal Information and Data Protection Tribunal to replace the current role of the Federal Court under PIPEDA, granting the Commissioner broad audit and order-making powers and granting greater powers in regards to conducting inquiries and making compliance orders, and introducing a new private right of action for individuals against an organization for loss or injury suffered as a result of the contravention.  This bill is currently in parliament.

Proposed AI Legislation

The Artificial Intelligence and Data Act (AIDA), was introduced in the Canadian Parliament in June 2022, as part of Bill C-27, the Digital Charter Implementation Act, a bill that also includes the Consumer Privacy Protection Act and the Personal Information and Data Protection Tribunal Act.  AIDA stands as one of the first national regulatory frameworks for AI to be proposed.  It is designed to protect individuals and communications from the adverse impacts associated with high impact AI systems and to support the responsible development and adoption of AI across the Canadian economy.  The Bill remains in the Standing Committee on Industry and Technology, and it is unclear when or if this bill will become legislation before the deadline to hold a federal election in October 2025.

Data Localization

The Province of Quebec adopted a law in September 2021 that amends its data protection regime. Under the new law, the government limits transfer of personal data outside of Quebec to jurisdictions with data protection regimes deemed “adequate” by the Quebec Government. The law brought into force new provisions to protect personal information in September 2022. Several other provisions, including those pertaining to data transfer, are scheduled to come into force over the next two years.

Cybersecurity

The Canadian Centre for Cyber Security, a federal government office within Communications Security Establishment Canada, reports that Canada faces a surge in cyber threats in 2024.  From government agencies being forced off-line to business and municipalities facing disruptions, no sector remains untouched as cyber-attacks rapidly evolve, outpacing the ability of institutions and the government to keep up.  In June 2022, the government of Canada introduced Bill C-26, which if it passed, would enact the Critical Cyber Systems Protection Act (CCSPA).  The CCSPA will impose a series of cybersecurity-related obligations on private-sector entities in four federally regulated sectors: telecommunications, finance, energy and transportation.  Bill C-26 is currently going through Parliament and is expected to pass into law by the end of 2024.

Online Harms Legislation

On February 26, 2024, the Government of Canada introduced its long-anticipated Online Harms Act, Bill C-63.  The bill introduces a new legislative and regulatory framework to reduce a range of harmful content on social media services as well as hate speech and hate crimes both online and offline.  The Online Harms Act would set baseline safety requirements that could evolve over time and would increase transparency regarding the strategies that platforms are using to protect users and the effectiveness of those strategies. A new Digital Safety Commission would be created to enforce the framework, and a Digital Safety Ombudsman would provide support for users and victims; both of which would receive support from the Digital Safety Office of Canada. Amendments to existing statutes are also proposed, including to the Criminal Code, the Canadian Human Rights Act, and an Act respecting the mandatory reporting of Internet child pornography by persons who provide an internet service. 

Public Sector Procurement

The Government of Canada ranks as the largest single procurer of IT goods and services in Canada.  The public procurement cycle is usually 12-24 months and requires companies to register with the Government’s supplier database and gain access to a procurement vehicle.  Having in-country representation is not mandatory but will provide U.S. companies with an advantage, especially after sales service is provided, and valuable face-to-face networking opportunities.

Digital Trade Barriers 

Digital Sales Taxation

Canada’s digital services tax (DST), which is set out in Bill C-59, was enacted on June 20, 2024, and entered into force on June 28, 2024.  The DST applies a 3 percent tax on the sum of revenues deemed connected to Canada from online marketplaces, online targeted advertising, social media platforms, and user data, and is retroactive to January 1, 2022. The tax applies to companies or groups with annual global revenues of at least €750 million (US$803.5 million) and Canadian digital services revenue of more than CAD$20 million (US$14.5 million). First payments under the DST are due June 30, 2025. Canada has taken these steps despite joining the October 8, 2021, Organization for Economic Co-operation and Development (OECD)/Group of 20 (G20) Inclusive Framework on Base Erosion and Profit Shifting Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitization of the Economy, which called for all Parties to commit to not introducing DSTs in the future.

Canada’s DST does not align with Canada’s obligations under Articles 15.3 and 14.4 of the United States-Mexico-Canada Agreement (USMCA), as it does not treat similar U.S. and Canadian companies and investors equally.   Based on these inconsistencies with Canada’s obligations under USMCA, on August 30, 2024, the United States requested consultations with Canada pursuant to Article 31 of the USMCA. If the United States and Canada cannot resolve the United States’ concerns through consultations within 75 days, under USMCA rules, the United States may request the establishment of a USMCA dispute settlement panel to examine the matter. In addition to requesting these consultations on Canada’s DST, the United States will continue its efforts at the OECD to reach a multilateral agreement to address the challenges to the international tax system posed by an increasingly digitized global economy and prevent the proliferation of discriminatory DSTs.

Online Streaming

The Canadian Government passed the Online Streaming Act (formerly Bill C-11) on April 27, 2023, and has instructed the Canadian Radio-Television and Telecommunications Commission (CRTC) to create a new methodology for financial contributions and obligations on streaming platforms to support and promote Canadian programming, as well as review how it defines Canadian programs. According to the CRTC, final implementation of the law will take place by 2026.  The CRTC could, in the future, increase the contribution percentage at its own discretion. The Act is also listed in the 2024 National Trade Estimate under “Service Barriers”.

On June 4, 2024, the CRTC announced an “initial base contribution” that requires streaming services, if they meet certain revenue thresholds and are unaffiliated with a Canadian broadcaster, to allocate 5 percent of their Canadian revenue to Canadian production funds during the 2024-2025 broadcasting year which began on September 1, 2024. U.S. companies have indicated they will closely monitor and participate in the CRTC’s consultations to update the decades-old rules used to determine what qualifies as Canadian content, which are expected to begin in Spring 2025.  The U.S. government continues to watch developments relating to the Online Streaming Act but does have concerns regarding the CRTC’s approach to implementing the act. The CRTC’s initial-base contribution decision reinforced the U.S. government’s view that Bill C-11 disproportionately targets U.S. companies to financially benefit Canadian firms.   

Audiovisual Services

For cable television and direct-to-home broadcast services, more than 50 percent of the channels received by subscribers must be Canadian channels.  Non-Canadian channels must be preapproved (“listed”) by the Canadian Radio-television and Telecommunications Commission (CRTC).  Alternatively, non-Canadian channels can become Canadian by ceding majority equity control to a Canadian partner, as some U.S. channels have done.  Foreign channels are prohibited from owning video distribution infrastructure in Canada.

In an annex to the USMCA Cross-Border Trade in Services Chapter, Canada committed to “ensure that U.S. programming services specializing in home shopping, including modified versions are authorized for distribution in Canada.”  Since entry into force, the United States has engaged with Canada to ensure its compliance with this commitment, which led Canada to introduce new rules in August 2023.  The United States continues to monitor Canada’s implementation to ensure full compliance with the commitment.

Canada permits Canadian cable and satellite suppliers to pick up the signals of U.S. stations near the border and redistribute them throughout Canada without U.S. broadcasters’ consent.  Content owners can apply for compensation for the use of such content in Canada from a statutorily mandated fund into which Canadian cable and satellite suppliers pay.  U.S. broadcasters consider this compensation to be insufficient and have sought the right to negotiate the carriage of their signals on commercially set rates and terms, as can be done in the United States. 

Digital Trade Opportunities

Advanced Manufacturing

Canada has a strong, established manufacturing base that leads the evolution to advanced manufacturing.  Backed by government support and a world-leading education system, the country is building global leadership in systems integration, artificial intelligence, sensors, machine vision, and automation.  Sectors embracing this technology advancement include automotive, aerospace, agriculture machinery and equipment and chemical production.

Artificial Intelligence

In recent years, the proliferation of digital technologies has led to a surge in the demand for Artificial Intelligence (AI) solutions across various sectors in Canada. Canada’s AI landscape has over 670 AI startups and 30 generative AI companies and has grown significantly, with the market projected to reach US$4.13 billion in 2024. Drivers include government support, research initiatives, and a thriving technology sector.  U.S. companies with expertise in responsible AI solutions can partner with Canadian businesses to fill this growing demand.  Canada is a world leader in the field of AI and has played a key role in the development of AI technologies since the 1970s. Canada became the first country globally to create a national strategy for AI, releasing in 2017. In 2022, the Government of Canada introduced the Artificial Intelligence and Data Act (AIDA) as part of Bill C-27, the Digital Charter and Implementation Act, 2022 to promote the responsible use of AI. It outlines regulations and guidelines for AI development and deployment, emphasizing transparency, accountability, and ethical considerations.

Specific Industry Sub-sectors

Quantum Technologies

Canada has committed to quantum technology research and development for several decades. Between 2012 and 2022, Canada made over CAD$1 billion (US $740 million) investments in quantum science, while private investors have put forward more than CAD$1 billion (US$740 million) since 2002. Canadian researchers are leaders in developing control software and application creation for quantum computing. The world’s first quantum computing company, D-wave, was launched in 2011 in Canada and is headquartered in Vancouver. Xanadu, headquartered in Toronto, works on quantum software and developed PennyLane, a software library for programming quantum computers. The National Research Council of Canada (NRC) estimates that the sector will become a CAD$139 billion (US $103 billion) industry by 2045, creating over 200,000 jobs and contributing a prospective 3% to Canada’s GDP. The Canadian government has positioned itself as a key driver of quantum innovation. In 2023, the government launched the National Quantum Strategy (NQS), a CAD$360 million (US $266 million), seven-year initiative aimed to strengthen research, talent development, and commercialization efforts.

Additionally, in its 2024 defense policy update, titled, “Our North, Strong and Free”, Canada emphasized the need to develop and increase investments for quantum technologies in order to address its main security threats, including increasing Arctic accessibility and the increasing threat of cyber-attacks. In its policy update, Canada pledged to participate in the NATO Innovation Fund and continue collaborating with Five Eyes partners (Australia, New Zealand, the United Kingdom, and the United States) to increase investments in quantum and other technologies. Additionally, Canada’s Department of Defence and Canadian Armed Forces (DND/CAF) published its Quantum Science & Technology Strategy Implementation Plan in 2023, also known as “Quantum 2030”, which sets forth a roadmap for ensuring DND/CAF is better prepared for the disruptive potential of quantum technologies. Quantum 2030 calls for identifying expected users of quantum technologies within DND/CAF, training personnel on quantum literacy, harmonizing quantum investments across DND/CAF, accessing state-of-the-art technology through innovation programs, and engaging with industry and academia.

Canada’s Cyber Centre partners with the U.S. National Institute for Standards and Technology (NIST) on the Cryptographic Module Validation Program (CMVP) and celebrated NIST’s August 13, 2024, release of the first three finalized post-quantum encryption standards.  The Cyber Centre also works with NIST to update the Cryptographic Algorithm Validation Program (CAVP) and the CMVP to test implementations of these new PQC algorithms and is working within the Government of Canada to ensure a smooth and timely transition to PQC.

Cybersecurity

Canada’s market for cyber security technologies has expanded rapidly, driven by increasing cyber threats and an increased dependence on digital infrastructure across industries. In 2024, Canada’s Cyber Security Market reached US$12.96 billion. Cyber threats are becoming more sophisticated and far-reaching due to the growing adoption of interconnected technologies, the increasing skill and organization of cyber criminals, and the vast amount of valuable data stored online. U.S. exporters of cyber technology and service can fill this growing need for cyber security solutions in Canada. Cyber security technologies are in high demand in the Canadian Federal government. Canada’s digital intelligence agency, the Communications Security Establishment (CSE), responded to more than 2,000 attacks on the federal government and its critical infrastructure partners in 2022. In response to these ongoing threats, Canada has issued a National Cyber Security Strategy and the National Cyber Security Action Plan (2019-2024).  In the private sector, opportunities exist across all sectors. According to data collected, an average data breach for Canadian companies costs approximately US$5.08 million per incident, representing approximately US$500 thousand more than the global average of US$4.45 million. Financial services and energy companies have particular vulnerability, with average breach costs reaching US$8.79 million and US$6.86 million respectively. U.S. companies offering advanced threat detection and prevention solutions can address this critical need. Opportunities for niche products also exist in specific sectors including the manufacturing sector, automated automobile development, critical infrastructure and construction, the airline industry and the financial services sector.

Financial Technologies

The fintech sector in Canada is dynamic and evolving, with significant opportunities for innovation and growth. The collaboration between fintech startups and traditional financial institutions will likely shape the future of the industry, making financial services more accessible and efficient for Canadians.  The Canadian financial-services industry is highly concentrated. The top five banks generated more than three-quarters of banking revenue, while the top six insurance firms generated almost 50 percent of revenues in the sector.  Additionally, Canada ranks among the world’s top five countries for smartphone penetration, internet usage, and higher education levels—measures that suggest a readiness to embrace new technology.  Yet Canada has not grown its fintech growth to the same level as other developed countries. Canada ranks among the bottom five developed countries for adoption of digital banking, digital B2B services, and fintech solutions. Only 13 percent of Canadian banking consumers use fintechs, for example, compared with 32 percent of those in the United Kingdom and 42 percent in the United States.  That leaves huge untapped potential. Canadian banking revenues from retail and small and medium-size enterprises (SMEs), for example, reached US$135 billion in 2022, of which just three percent went to fintech. That’s about US$5 billion short of what might be possible were penetration levels similar to those in the United States, where fintech penetration is eight percent.

Canada’s fintech industry needs critical developments to the long-term growth of the industry including consumer behavior, partnerships, funding, the regulatory environment, and talent.  In Canada, one potential niche segment is people who have recently settled in the country. Canada has one of the world’s highest immigration rates and welcomed about 500,000 people in 2022. Of these, 60 percent were between 20 and 39 years old—the age group most likely to use fintech products. In Canada, partnerships remain scarce. Fintech leaders, investors, and academics have identified challenges associated with bank–fintech partnerships. These included long sales cycles of up to 24 months, costly and arduous risk management and compliance requirements, and stringent exclusivity clauses. Regulatory compliance requirements hamper the formation of partnerships.

Canadian fintechs received a record US$7.8 billion in investments in the first six months of 2024, up more than seven-fold from last year’s full-year total of US$1.1 billion. Private equity investments into two Montréal-based fintechs – Nuvei Corp. and Plusgrade Inc. – accounted for 94 per cent of the total value invested in Canada – and were also among the biggest five deals globally. These two Canadian deals reflect the growing fintech ecosystem in Montréal, and Quebec more broadly, where the startup scene thrives thanks to support from institutional investors, and a steady stream of talent from world-class universities.

Upcoming Events

SecTor 2024, Toronto, Ontario, October 23-24, 2024

InCyber Forum North America, Montreal, Quebec, October 25-26, 2024

Web Summit 2025, Vancouver, British Columbia, May 2025

All In 2024, Montreal, Quebec, September 24-25, 2025

Helpful Resources

1. I&A’s Office of Digital Services Industries (ODSI)
2. National Trade Estimates Report – Digital Trade Barriers
3. White House CET List, e.g., Artificial Intelligence -> Machine Learning
4. U.S. Department of Commerce, International Trade Administration, Industry & Analysis Office of Digital and Emerging Technology Service (DETS) 
5. United States International Cyberspace & Digital Policy Strategy - United States Department of State
6. United States Requests USMCA Dispute Settlement Consultations on Canada’s Digital Services Tax | United States Trade Representative (ustr.gov)