AI data centres in Canada: Legal and regulatory considerations for developers and investors looking to build

Our previous Insight, AI data centres and the law: What you need to know, addressed the “digital” side of AI data centres, including data privacy, cybersecurity, commercial contracting, government procurement and cross-border data transfer. This second volume turns to the “physical” side: The corporate, financial, regulatory, real property, energy, environmental and stakeholder dimensions that developers and investors must navigate to get an AI data centre built, powered and operational in Canada.

AI data centres are capital-intensive and legally complex infrastructure projects. Large-scale data centre projects require significant land holdings, enormous quantities of electricity, sophisticated financing arrangements and coordination with multiple levels of government, utility providers, Indigenous communities and local stakeholders.

This article walks through eight interconnected topics that are top of mind for proponents, investors and their advisers as Canada positions itself as a destination for AI data centre investment.

1. Corporate structuring for AI data centre projects

Data centre proponents need to establish the right corporate structure from the outset. The appropriate structure will depend on a range of project-specific factors, including whether the facility involves only data processing and storage or also includes on-site power generation.

Why structure matters

A data centre that operates solely as a computing and storage facility presents a different legal profile from a data centre campus that co-locates power generation alongside its computing operations. For example, where a project includes on-site generation, a project proponent may want to consider establishing the generation assets in separate legal entities and apart from the data centre itself.

Across Canada, regulatory requirements often differ for power generation facilities and data processing facilities. In Alberta, as an example, power plants above a certain capacity threshold require approvals from the Alberta Utilities Commission, and the regulatory obligations applicable to a power generation entity may be materially different from those applicable to a data centre operator. Separating the two aspects of the project into distinct entities may help to ensure that the regulatory obligations, liabilities and compliance burdens associated with generation do not inadvertently attach to the data centre operations, and vice versa.

Tax planning, mergers and acquisitions (M&A) and financing considerations may also favour separating generation facilities from data center operation facilities. Different entities may be eligible for different tax incentives, depreciation schedules or investment credits based on their activities or business. A generation entity may, for instance, qualify for clean energy investment tax credits, while the data centre entity may be eligible for incentives related to AI or digital infrastructure investments. Proponents may wish to retain the ability to sell, finance or bring in partners for the generation required for a data centre facility independently of the data centre itself (or vice versa). Lenders and equity investors may have different risk appetites and return expectations for energy assets compared to digital infrastructure assets. Separate entities may allow each component to be financed on terms that reflect its specific risk profile, revenue model and asset characteristics.

Practical considerations

Proponents should engage corporate, tax, energy and regulatory counsel early in the project development process to determine the optimal structure. Key questions include:

• Whether the project will involve a single legal entity or a multi-entity structure
• What jurisdiction of incorporation is most appropriate for each entity
• How intercompany arrangements (such as power purchase agreements between the generation entity and the data centre entity) should be documented
• Whether limited partnership, joint venture or other structures are appropriate to accommodate multiple investor classes
• How the structure will interact with applicable foreign ownership restrictions and regulatory approval requirements

Health check: Corporate structuring

• Have you assessed whether your proposed project requires separate entities for generation and data centre operations based on regulatory, tax and financing considerations?
• Have you engaged corporate, tax and energy counsel to model the optimal structure before committing to a particular legal form?
• Does your proposed structure preserve flexibility for future M&A transactions, including the ability to sell or finance individual project components independently?
• Have you considered how your corporate structure interacts with applicable foreign ownership restrictions?

2. Financing and tax/grant incentives

AI data centres – and data centre campuses with on-site generation – are capital-intensive undertakings. The financing arrangements underpinning these projects are correspondingly complex and require careful structuring to align capital sources with project milestones, risk allocation and available incentive programs.

Capital stacks and financing structures

Most large-scale data centre projects may be financed through a combination of equity, project-level or corporate debt, and in some cases government-supported financing or loan guarantee programs. The capital stack for a given project will depend on the developer’s balance sheet strength, the project’s risk profile, the availability of long-term offtake or tenancy commitments and the developer’s overall portfolio strategy.

Project finance structures in which debt is secured primarily against the project’s assets and future cash flows rather than the developer’s corporate balance sheet may become increasingly common for large data centre projects, particularly where the project has secured long-term commitments from creditworthy counterparties. These structures require detailed financial modelling, comprehensive security packages and carefully negotiated intercreditor arrangements.

For projects that include on-site power generation, the financing structure may need to accommodate the different risk and return profiles of the generation and data centre components. As discussed above, this different risk project for the generation facilities compared to the data centre components may be a reason why the generation and data centre facilities are established through separate corporate entities.

Tax incentives and government programs

Developers will want to ensure that their project and corporate structures are designed to capture all available tax incentives and government programs. At the Federal level, the Government of Canada has introduced investment tax credits for qualifying clean energy investments, which may be available for generation components that use eligible clean technologies. Carbon capture and storage credits, clean hydrogen credits and clean technology manufacturing credits may also be relevant depending on the project’s generation assets and energy profile.

Provincially, jurisdictions are actively competing to attract data centre investment. Alberta, for example, has introduced a data centre levy – a 2% computer hardware levy imposed on grid-connected data centres drawing 75 MW or more of power – that is fully creditable against Alberta corporate income tax once the data centre becomes profitable. In Saskatchewan, for example, the provincial government’s partnership with Bell Canada on a 300 MW data centre near Regina involved coordination across Crown corporations (SaskPower, SaskTel and SaskEnergy) to provide the infrastructure and services needed to support the project.

In general, there is a growing landscape of government grants and strategic supports that may be relevant to data centre proponents.

Health check: Financing and tax incentives

• Have you modelled your project’s capital stack to reflect the full range of available equity, debt and government-supported financing options?
• Has your tax counsel assessed all available Federal and Provincial incentives, including clean energy investment tax credits, and confirmed that your corporate and project structure is optimized to capture them?
• Have you explored whether provincial economic development agencies, infrastructure programs or strategic investment incentives are available for your project?
• If your project includes on-site generation, have you considered whether separate financing for the generation and data centre components would yield more favourable terms?

3. M&A and foreign investment

Large-scale data centre investments frequently involve acquisitions, joint ventures or injections of foreign capital that may trigger regulatory review under the Investment Canada Act (ICA) and, in some cases, review by the Competition Bureau.

The Investment Canada Act and National Security Review

The ICA provides the Federal government with the authority to review foreign investments in Canada to ensure they provide a net benefit to the Canadian economy and do not pose a risk to national security. The national security review provisions, substantially strengthened by the passage of Bill C-34 (the National Security Review of Investments Modernization Act) in March 2024, gives the Minister of Innovation, Science and Industry broad powers to review, impose conditions on or block foreign investments that may be injurious to national security.

Data centres may be particularly susceptible to national security scrutiny. The government’s guidelines on national security review identify several factors that are directly relevant to data centre investments, including the potential impact on the security of Canada’s critical infrastructure, the potential to enable foreign surveillance or espionage and the potential to enable access to sensitive personal data that could be leveraged to harm Canadian national security. The guidelines expressly reference critical infrastructure – defined as processes, systems, facilities, technologies, networks, assets and services essential to the health, safety, security or economic well-being of Canadians – as a factor that will be considered in assessing whether an investment could be injurious to national security.

The 2024 amendments introduced several significant changes relevant to data centre transactions. These include a new mandatory pre-closing filing requirement for investments in designated sensitive sectors (which may include next-generation computing and digital infrastructure, artificial intelligence and energy generation, storage and transmission); enhanced ministerial powers to impose interim conditions on investors during the review process; increased penalties for non-compliance (up to $500,000 for failure to comply with the pre-closing filing obligation and up to $25,000 per day for other contraventions) and the ability for the Minister to accept binding undertakings from investors without having to refer the matter to Cabinet.

Competition Bureau review

Depending on the size and structure of the transaction, acquisitions of data centre assets or companies may also be subject to pre-merger notification requirements under the Competition Act. These requirements are separate from the ICA process and apply based on prescribed financial thresholds (relating to the size of the parties and the value of the target’s Canadian assets or revenues). Where notification is required, the parties cannot complete the transaction until the applicable waiting period has expired or the Commissioner of Competition has issued an advance ruling certificate or a no-action letter.

Health check: M&A and foreign investment

• If your project involves foreign capital, whether equity, debt or through a joint venture, have you assessed whether the investment triggers a filing obligation under the ICA?
• Have you considered whether your data centre may be classified as critical infrastructure for the purposes of the national security review provisions?
• Have you built flexibility into your transaction timeline to accommodate potential national security review, including the possibility of interim conditions being imposed during the review period?
• Have you assessed whether the transaction exceeds the financial thresholds for pre-merger notification under the Competition Act?

4. Energy supply and grid interconnection

Power is the lifeblood of a data centre, and the question of how a facility secures its electricity supply is among the most consequential decisions a proponent will face. The answer varies significantly depending on the province and the project.

Alberta: A deregulated market with grid constraints

Alberta operates a deregulated, competitive wholesale electricity market. The Alberta Electric System Operator (AESO) manages the provincial power grid and facilitates the wholesale market, but generators and consumers are free to negotiate private power purchase agreements (PPAs) directly. This market structure allows data centre developers to contract for power from independent generators of their choosing. Alberta is also encouraging developers to “bring your own generation” and consider co-locating power facilities alongside their other project infrastructure to avoid or limit their reliance on connecting to the Alberta grid.

The path is more constrained for data centres that require grid-supplied power. At its peak, the AESO reported that cumulative data centre connection requests exceeded 16,000 MW, which is well above Alberta’s current peak demand of approximately 12,000 MW. In response, the AESO implemented a phased intake process limiting the volume of new large-load connections in the near term. An interim capacity limit of 1,200 MW has been set for large-load data centre projects seeking in-service dates in 2027 and 2028, with capacity allocated on a pro rata basis among qualifying projects. Projects that do not secure capacity in this initial allocation and require grid connection may need to wait for the AESO’s development and implementation of its long-term large-load integration framework.

Saskatchewan: A crown utility model

Saskatchewan’s electricity system operates on a fundamentally different model than Alberta’s. The Saskatchewan Power Corporation (SaskPower), a Crown corporation owned by the provincial government, is the province’s principal electricity regulator and provider and has the exclusive right and obligation to supply electricity across the vast majority of the province. Unlike Alberta, Saskatchewan does not have a deregulated wholesale electricity market, and data centre developers cannot simply negotiate PPAs with independent generators unless they secure a consent from SaskPower.

For large-scale data centre projects in Saskatchewan, securing power supply will require direct engagement with SaskPower and, in some cases, coordination with other Crown corporations. The Bell Canada data centre, a planned 300 MW facility in the Rural Municipality of Sherwood just outside of Regina that was announced in March 2026, illustrates this model. SaskPower began work on the first phase of the transmission interconnection to provide reliable power, and the project involves coordination across SaskPower, SaskTel and SaskEnergy to support the facility.

Other provinces

Each province has its own electricity market structure and regulatory framework, and data centre developers must understand the applicable regime before committing to a particular jurisdiction. Ontario, for instance, is currently considering legislative changes that would give the province the power to select which data centres are permitted to connect to the provincial grid. Similarly to Saskatchewan, British Columbia relies heavily on BC Hydro, another Crown corporation. The regulatory pathway to securing power for a data centre will differ materially in each jurisdiction.

Health check: Energy supply and grid interconnection

• Have you assessed the electricity market structure in your target province and understood the regulatory pathway to securing power for your data centre?
• If you are pursuing a grid connection in Alberta, have you assessed whether your project qualifies for the AESO’s current large-load integration process and whether capacity is available within the interim allocation?
• If you are considering on-site generation, have you factored in the regulatory approvals required for the generation facility, including any Alberta Utilities Commission or equivalent provincial regulatory body approvals?
• If you are developing in Saskatchewan, have you engaged with SaskPower and other relevant Crown corporations to confirm that adequate power supply and transmission infrastructure can be made available on your proposed timeline?

5. Real estate, zoning and land use

Site selection is a critical early-stage decision for any data centre project. The legal and regulatory considerations surrounding land acquisition, zoning and land use planning are complex and can vary significantly from one municipality to the next.

Zoning and municipal approvals

Data centres involve industrial-scale power consumption, specialized mechanical and electrical infrastructure and activities that may generate noise, including from cooling systems and backup generators. Not all locations are zoned to accommodate these uses. Developers will typically need to confirm that the target site is zoned for industrial or special-use purposes that permit data centre operations or pursue a rezoning application if it is not. Rezoning processes can involve significant community consultation, public hearings and review by municipal planning authorities.

Agricultural land and community engagement

The tension between data centre development and agricultural land use has become a prominent issue across the Canadian Prairies. In Rocky View County, Alberta, a municipal council heard from more than 50 presenters who opposed a proposed technology park and data centre development during a 10-hour public hearing in September 2025. Only a small minority of the presentations spoke in favour of the project. In several Alberta municipalities, councillors have expressed reluctance to approve data centre projects on prime agricultural land, noting that the economic benefits may not justify the permanent loss of productive farmland.

In March 2026, the Alberta Utilities Commission denied Synapse Data Centre’s application for what would have been the largest data centre in Canada located near the Town of Olds, Alberta. The Commission cited deficiencies in the application, including incomplete environmental evaluations, missing information and a public consultation process that had started only 14 days before the application was submitted. The Commission noted that the environmental evaluation was a draft document with missing figures and incomplete field studies and that the application failed to account for potential noise impacts on residents.

Foreign ownership of land restrictions

Developers assembling large land parcels for data centre projects, including on-site generation, must also consider provincial restrictions on foreign ownership of agricultural or rural land. This consideration is particularly relevant for non-Canadian developers or developers with foreign investors.

In Saskatchewan, The Saskatchewan Farm Security Act restricts the ownership of farmland by non-Canadian individuals and entities. Farmland is defined broadly to include land outside cities, towns, villages, hamlets and resort villages that is used or capable of being used for farming. Non-Canadian individuals and entities controlled in whole or in part by non-Canadians are generally limited to holding no more than 10 acres of Saskatchewan farmland without an exemption from the Farm Land Security Board. Entities with shares traded on a public stock exchange are treated as non-Canadian-owned for these purposes.

In Alberta, the Agricultural and Recreational Land Ownership Act and the Foreign Ownership of Land Regulations impose analogous restrictions. Generally, a foreign-controlled corporation may not acquire an interest in controlled land outside urban boundaries exceeding 20 acres, subject to certain exemptions, such as exemptions for the construction and operation of power plants and for industrial facilities that do not exceed 80 acres per facility. Where no recognised exemption applies, the Lieutenant Governor in Council may grant an Order in Council excluding the transaction from the legislation where the development is deemed to be of economic benefit to Alberta.

Subdivision and other title considerations

Beyond zoning and foreign ownership, developers should consider whether the proposed site assembly will trigger subdivision approval requirements under applicable provincial planning legislation and whether there are existing interests registered on title, such as utility easements, pipeline rights-of-way, caveats or encumbrances, that may need to be addressed before construction can proceed.

Health check: Real estate, zoning and land Use

• Have you confirmed that your proposed site is zoned for data centre use or have you assessed the timeline and risk associated with a rezoning application?
• If your site involves agricultural or rural land, have you assessed the applicable provincial foreign ownership of land restrictions and determined whether an exemption or government approval is required?
• Have you engaged with the municipal planning authority early in the process to understand their requirements and to gauge the level of community support or opposition?
• Have you conducted thorough title searches and confirmed that there are no registered interests such as easements, rights-of-way or other encumbrances that would impede development?
• Have you assessed whether the proposed land assembly will trigger subdivision approval requirements?

6. Infrastructure development and procurement

Data centres are complex infrastructure projects that require the coordinated procurement and construction of specialised facilities and equipment. The construction and procurement contracts underpinning these projects must be carefully structured to manage delivery risk, allocate responsibility for cost overruns and delays and ensure that the facility meets the exacting technical standards required for modern AI computing environments and energy facilities.

Construction contracts

The construction of a data centres and related generation infrastructure may involve complex civil, structural, mechanical and electrical work. Key infrastructure components may include power substations, switchgear and distribution systems, cooling plants that use air, water, or hybrid cooling technologies, fire suppression systems, physical security infrastructure and fibre-optic connectivity. Each of these components requires specialised engineering and procurement, and the construction timeline must be carefully sequenced to ensure that all systems are integrated and commissioned in an orderly fashion.

Construction agreements for data centre projects may include engineering, procurement and construction (EPC) contracts, design-build agreements or construction management arrangements. The choice of contract form will depend on the developer’s risk appetite, the complexity of the project, and the degree to which the developer wishes to retain control over design decisions and procurement of major equipment or facilities. Regardless of the contract form, careful attention must be paid to key terms within each agreement, including scheduling provisions, liquidated damages for delay, performance guarantees and testing protocols, change order procedures and insurance requirements.

Supply chain risk

As discussed in the first volume of this guide, global supply chains for critical data centre components remain under pressure. Lead times for major electrical equipment, including transformers, switchgear, and generators, can exceed twelve months or more. GPU and server hardware is subject to intense global demand and, in some cases, export controls. Developers must plan procurement well in advance of construction and build appropriate contingencies into their project schedules and budgets.

Public-private partnerships

Some data centre projects, particularly those with significant government involvement or strategic national importance, may be structured as public-private partnerships (P3s) or involve elements of government procurement. Bell Canada’s March 2026 announcement of a 300 MW data centre mentioned above was positioned as a coordinated effort between Bell and the Government of Saskatchewan and several of its Crown corporations, including SaskPower, SaskTel and SaskEnergy. The project also announced commitments for Indigenous procurement participation, workforce development and support for postsecondary research institutions.

Projects with a P3 or government partnership component may require developers to navigate government procurement processes, comply with public-sector contracting requirements, and meet commitments related to local content, workforce development, and Indigenous participation. These requirements add complexity to the procurement and contracting process but can also provide access to government-supported infrastructure, financing and strategic support.

Health check: Infrastructure development and procurement

• Have you selected a construction contract form that appropriately allocates risk and allows for meaningful schedule protections and performance guarantees?
• Have you identified and secured, or started to assess the timelines for, long-lead equipment well in advance of your construction start date?
• If your project involves a public-private partnership or government procurement component, have you assessed and budgeted for the additional requirements associated with government contracting, including local content, Indigenous participation and workforce development commitments?
• Do your construction and supply contracts include appropriate force majeure, change order and dispute resolution provisions?

7. Environmental and regulatory permitting

Data centres, including campuses that include on-site power generation, must navigate a range of environmental regulatory requirements that vary based on the project’s size, location, energy source, and use of natural resources.

Environmental assessments

Depending on the province and the nature of the project, a data centre or its associated generation facilities may require an environmental assessment or environmental approval before construction can proceed. In Alberta, power plants above a certain capacity threshold may require a regulatory approval or registration under the Environmental Protection and Enhancement Act. The Alberta Utilities Commission may also require the submission of a completed environmental evaluation as part of the power plant approval process. This was a requirement that proved pivotal in the Synapse Data Centre decision noted above where the Commission found the environmental evaluation provided the developer to be a draft document with missing information, incomplete field studies conducted during winter and conclusions about wildlife and wetlands based on preliminary desktop data only.

Water use and cooling

High-capacity cooling systems are essential to data centre operations. While different cooling technologies are emerging, some of the current technologies can consume substantial volumes of water. This can be a significant regulatory and community concern, especially in regions already sensitive about drought events or water scarcity. Developers must determine whether their proposed water use requires licences or approvals under applicable provincial water legislation and may need to formally assess the cumulative impact of their water use on local water resources.

Notably, some developers are adopting closed-loop cooling systems that do not draw from municipal water resources. Closed-loop systems may reduce both the regulatory burden and the community opposition associated with large-scale water consumption.

Air emissions and noise

Where a data centre includes on-site generation, the generation facility may be subject to air emissions standards and require emissions permits or approvals. Noise is another significant concern, as cooling systems, generators and other mechanical equipment can produce sustained noise levels that affect neighbouring properties. The Synapse Data Centre application in Town of Olds, Alberta, was criticized, in part, for failing to account for potential noise impacts on residents, including from backup diesel generators.

Developers should consider conducting noise impact assessments early in the project planning process and incorporate noise mitigation measures (such as acoustic enclosures, setbacks and operational restrictions) into the facility design.

Health check: Environmental and regulatory permitting

• Have you assessed whether your project requires a Federal or Provincial environmental assessment, approval or registration, and have you budgeted adequate time for the environmental process?
• If your project includes on-site generation, have you obtained or applied for the required environmental approvals?
• Have you determined your project’s water requirements and assessed whether water licences or approvals are needed under applicable provincial water legislation?
• Have you conducted noise and air emissions assessments and incorporated mitigation measures into your facility design?
• Is your environmental evaluation based on complete, current field data, such as species-at-risk surveys and wetland assessments conducted during appropriate seasons?

8. Stakeholder engagement

Early and meaningful stakeholder engagement is a practical and legal necessity for large-scale data centre projects. Regulators, municipalities and courts have demonstrated a willingness to halt or refuse projects where engagement has been inadequate.

Indigenous consultation and engagement

The duty to consult arises when the Crown (Federal or Provincial) contemplates conduct – such as issuing a regulatory approval, granting a permit or making a land-use decision – that may adversely affect the exercise of established or asserted Aboriginal or treaty rights. For data centre projects, Indigenous consultation requirements may be triggered by power plant approvals, environmental approvals, water licence applications or land-use decisions made by provincial or municipal authorities.

Developers do not bear the Crown’s duty to consult, but they are frequently expected or required by regulators to carry out the procedural aspects of consultation on the Crown’s behalf. In Alberta, for example, applicants to the Alberta Utilities Commission are required to engage with Indigenous groups, landowners, local communities and other stakeholders before submitting a power plant application.

Meaningful engagement often goes beyond regulatory compliance. Developers who engage with Indigenous communities early and in good faith can build collaborative relationships that strengthen projects through partnership agreements, procurement commitments, workforce development programs and revenue-sharing arrangements. Bell Canada’s data centre near Regina, for example, includes an agreement with George Gordon First Nation focused on Indigenous procurement participation and workforce development.

Conversely, failure to consult can have serious consequences. For example, Sturgeon Lake Cree Nation issued a cease-and-desist letter to the Alberta government after learning about the proposed Wonder Valley data centre campus through a press release and without prior consultation.

Municipal and community engagement

Beyond Indigenous consultation, proponents should engage early with municipal governments, planning authorities and local communities. Municipal buy-in can be a determining factor in whether a project secures the necessary zoning approvals, road access, utility connections and political support to proceed. Community opposition has already proven to be a significant risk factor for data centre and other energy generation projects in Canada.

Proponents should also engage with supply chain organisations, utility providers, educational institutions and other stakeholders who may be affected by or benefit from the project. Projects that can demonstrate tangible community benefits, such as workforce training programs, partnerships with postsecondary institutions and commitments to local procurement, may be more likely to secure community support and regulatory approval.

Health check: Stakeholder engagement

• Have you identified all Indigenous communities whose established or asserted rights may be affected by your project, and have you initiated engagement at the earliest stages of project planning?
• Have you engaged with the municipal government and local planning authority to understand their priorities, concerns and approval requirements?
• Is your stakeholder engagement program comprehensive, well-documented, and initiated sufficiently in advance of any regulatory filings?
• Have you developed a community benefits plan that addresses local concerns and demonstrates tangible value to the communities affected by your project?
• If your project involves on-site generation or significant environmental impacts, have you conducted stakeholder engagement on environmental concerns, including noise, air quality, water use and traffic and documented how you have addressed or mitigated those concerns?

Legal risk management: Next steps

This article has covered a broad range of legal and regulatory considerations for AI data centre projects and campuses in Western Canada. The pace of development in this sector is notable, and the legal landscape is evolving rapidly alongside it.

The health check questions embedded throughout each chapter are designed to help developers, investors and their advisers identify the key legal and regulatory issues that need to be addressed at each stage of project development. A legal team with experience across corporate, tax, energy, environmental, real property, Indigenous law, construction and regulatory matters can help ensure that these issues are identified and managed proactively rather than reactively, which can help to ensure that projects are positioned for long-term success in an increasingly competitive market.

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