Federal policy and voluntary guidance make up most of Canada’s recent updates on AI regulation, and only a law can bind a private business. The updates focus on balancing innovation with responsible AI use. Guidelines are not statute, so an owner should know which one a requirement comes from before spending money on it. Here is what changed and what to do about it.
What Changed
The government has published policies and guidance on AI development and deployment, most of it aimed at federal institutions or offered as voluntary guidance. New guidelines emphasize data privacy, transparency in AI systems, and accountability for ethical AI use. These revisions aim to reduce bias and increase fairness in AI applications.
For full details, see the Government of Canada AI policy page.
Which Canada AI regulations actually apply to a private business?
Three documents get quoted as Canada’s AI rules, and only one binds a private company today: PIPEDA, the federal private-sector privacy law, which covers any AI tool that touches personal information. The federal Directive on Automated Decision-Making binds departments, not businesses, and ISED’s generative AI code is voluntary.
- PIPEDA. The federal private-sector privacy law already covers any AI tool that touches customer or employee personal information. Under Principle 4.1.3 of its Schedule 1, you stay responsible for that information when a vendor processes it for you, and the Privacy Commissioner’s guidance on processing across borders says a contract is the main way to show it.
- The Directive on Automated Decision-Making. This Treasury Board directive binds federal departments, not businesses. It requires an algorithmic impact assessment, notice to the people affected and human review for higher-impact decisions. It matters to you if you sell software or services to Ottawa, because those requirements flow into the contract.
- The voluntary generative AI code. ISED’s September 2023 code of conduct lists commitments on accountability, safety, fairness, transparency, human oversight and robustness. Signatories include Cohere, CGI, TELUS, OpenText and CIBC. It is voluntary, and the code itself says it does not change any obligation under PIPEDA.
So the order of work is simple. Privacy law first, because it is enforceable now. Government contract terms second, if Ottawa is a customer. The voluntary code third, as a checklist your larger customers may start asking about.
Why It Matters
Businesses, especially small and medium-sized ones, face growing expectations to show their AI tools meet transparency and fairness standards. Canada has no standalone federal AI law in force, since the Artificial Intelligence and Data Act failed in January 2025. Legal penalties today come mainly through privacy law such as PIPEDA, and the privacy bill now before Parliament, Bill C-36, has not passed. Outside those rules, the exposure is mostly customer, procurement and reputation risk. Companies that adapt early may gain a competitive edge by building customer trust.
Learn more about these standards in the Privacy Commissioner of Canada’s AI guidelines.
What Business Owners Should Do Next
- Review current AI tools and assess them against current privacy law and the guidance above.
- Collaborate with vendors or developers to implement transparency features.
- Educate employees on ethical AI practices and what the guidance does and does not require.
- Keep informed with trusted sources and official announcements.
These steps can help your business reduce risk and demonstrate responsible AI use.
Where to Learn More
For further insights on AI regulation policy, visit the Canadian Institute for Advanced Research (CIFAR) on AI policy.
AImagazine.ca will continue to track regulatory developments and explain what they mean for Canadian businesses.
More in the same thread on our Canadian AI policy reference.
Frequently asked questions
Does Canada have an AI law for businesses?
No standalone AI law is in force. The Artificial Intelligence and Data Act died when Parliament was prorogued in January 2025. Businesses are governed by privacy law such as PIPEDA, plus sector rules and provincial laws. The gap widened when AIDA died, as Canadian AI regulation coverage of that bill shows.
Is the Directive on Automated Decision-Making mandatory for my company?
No. It applies to federal institutions. A supplier can still inherit its requirements through a federal contract.
Should a small business sign the voluntary AI code of conduct?
Only if it builds or runs a generative AI system for others. Most small firms are better served using its six principles as a vendor checklist.
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