As of September 2012, there are no formal diplomatic relations between the Islamic Republic of Iran and Canada, instead of exchanging ambassadors, Canada maintains an interests section at the Italian Embassy in Tehran (since September 2012), while Iran maintains an interests section at the Embassy of Oman in Ottawa (since October 2013).
Prior to 1955, Canadian Consular and Commercial Affairs in Iran were handled by the British Embassy. Foreign relations and diplomatic ties between Canada and Iran began with the founding of an Iranian mission in Ottawa in 1956, and a Canadian mission in Tehran in 1959. The Canadian mission was granted embassy status in 1961.
In October 2015 after the elections, Justin Trudeau, the Canadian prime minister-designate has said that he has plans to restore relations between the two nations, in the wake of the Iranian nuclear deal. 
Formal relations between the two nations continued uninterrupted from 1955 until 1980. When Ayatollah Ruhollah Khomeini's Iranian Revolution drove the Shah from the country in 1979, the Canadian Embassy scrambled to evacuate the 850 Canadian workers in Iran while the embassy staff remained. Six American diplomats took refuge in the Canadian embassy after Iranian student protesters stormed the U.S. embassy, and the Canadian government, in coordination with the Central Intelligence Agency, safely evacuated them from the country using Canadian passports with forged Iranian visas. This covert rescue became known as the "Canadian Caper", and while it improved Canada's relations with the United States, Canada–Iran relations became more volatile. The embassy staff were quickly evacuated for fear of retribution against Canadians, and the embassy was closed in 1980.
Due to rocky relations after the Iranian Revolution, Iran did not establish an embassy in Canada until 1991. Its staff, which had been living in a building on Roosevelt Avenue in Ottawa's west end, moved into 245 Metcalfe Street in the Centretown neighbourhood of Ottawa, and the mission was upgraded to embassy status. In Tehran, the Canadian Embassy had been located at 57 Shahid Sarafaz Street and Ostad Motahari Avenue. The mission was staffed by a chargé rather than a full ambassador.
Resumption of diplomacy
From 1980 to 1988, Canada and Iran did not have normal diplomatic ties, though relations were not formally severed. The Canadian government was reluctant to reopen an embassy given the Iranian government's actions of kidnapping and torturing diplomats. Canada and Iran agreed to resume diplomatic relations in 1988, and the Canadian embassy in Tehran was re-opened. The nations formally exchanged ambassadors in 1996. Canadian concerns over human rights abuses in Iran, its record on nuclear non-proliferation, and its opposition to the Middle East peace process led to a policy of "controlled engagement" by Canadian diplomats, such as limiting the range of conversation and restricting bilateral ties; for instance, preventing the establishment of direct air links between countries or the opening of Iranian consulates and cultural centres in Canada other than the main embassy. Canada has also continued to express its concern about human rights in Iran, and in particular, issues such as the independence of the judiciary, arbitrary detention, freedom of expression, treatment of women and treatment of persons belonging to religious and ethnic minorities, such as members of the Bahá'í Faith.
Relations between Canada and Iran drastically deteriorated in June 2003 when Zahra Kazemi, an Iranian-Canadian freelance photographer from Montreal, was arrested while taking pictures outside a prison in Tehran during a student protest. Three weeks later, she was killed while in custody.
Iranian authorities insisted that her death was accidental, claiming that she died of a stroke while being interrogated. However, Shahram Azam, a former military staff physician, stated that he examined Kazemi's body and observed obvious signs of torture, including a skull fracture, broken nose, signs of rape and severe abdominal bruising. This information was revealed within Azam's case for seeking asylum in Canada in 2004
Kazemi's death was the first time an Iranian's death in custody attracted widespread international attention. Because of her joint citizenship and the circumstances of her death, the tragedy generated considerable international controversy. In November 2003, Canadian Journalists for Free Expression honoured Kazemi with the Tara Singh Hayer Memorial Award in recognition of her courage in defending the right to free expression.
Canada and Iran took the dispute over Zahra Kazemi to the international stage when Canada drafted a United Nations resolution to condemn the human rights abuses in Iran. The resolution expressed concern for Iran's use of torture and other forms of cruel, inhuman and degrading punishment, particularly the practice of amputation and flogging. Gholamhossein Elham, the Iranian judiciary spokesman, responded by claiming, "The Canadian government has the worst, most backward and racist judiciary system." Iran further accused a Canadian police officer of gunning down 18-year-old Iranian Kayvan Tabesh on July 14 in Vancouver, British Columbia. The police officer claimed self-defence after the teenager allegedly charged at him with a machete. Iran also presented a 70-page report before the adoption of the resolution, detailing alleged human rights abuses in Canada in an attempt to discredit the main backer of the resolution.
In a case similar to that of Kazemi, a prominent Canadian-Iranian blogger, Hossein Derakhshan, was detained by police in Tehran in 2008 over remarks he made about the Shiite faith, according to the Iranian Judiciary.
"Controlled engagement" and United Nations Resolution 1737
On May 17, 2005, Canada tightened its controlled engagement policy by limiting talks with Iran to four subjects:
- Human rights situation in Iran;
- Iran's nuclear programme and its compliance with non-proliferation obligations;
- The case of Zahra Kazemi;
- Iran's role in the region.
In October 2005, Iranian president Mahmoud Ahmadinejad gave a speech at a conference entitled "The World Without Zionism". During the speech he made comments that were widely interpreted as anti-semitic by the Jewish community and the Western world in general. Canadian Prime Minister Paul Martin summoned the Iranian ambassador in Canada and gave a formal reprimand.
On December 26, 2006, the United Nations Security Council unanimously adopted Resolution 1737, demanding that Iran suspend its uranium enrichment program or face economic sanctions. On February 22, the Governor-in-Council made new regulations under the United Nations Act: Regulations Implementing the United Nations Resolution on Iran. Together with existing relevant provisions of the Canada Shipping Act, the Export and Import Permits Act, and the Nuclear Safety and Control Act, these provisions allowed Canada to bring economic sanctions against Iran as requested in resolution 1737. The sanctions include a ban on any trade that could contribute to Iran's activities in enrichment, reprocessing heavy water, or the development of nuclear weapons delivery systems. The regulations also deal with freezing assets and notification of travel by Iranian officials in Canada.
In June, Iranian Foreign Minister Manouchehr Mottaki told the Islamic Republic News Agency that Canada was "hiding some spies at their embassy in Tehran and allowing them to escape". Mottaki told the IRNA that he warned his Canadian counterpart at the UN General Assembly in 2005 that "Canada should be aware of its limits and realize what country it was dealing with." On November 30, 2006, the conservative-dominated parliament in Iran accused the Canadian embassy of being a "den of spies" for the United States and launched a query to investigate. Iranian MPs met with the Iranian Intelligence Minister Gholam Hossein Mohseni Ejeie to discuss the charges.
In 2007, moves to warm relations between the two countries occurred with the Supreme Court in Iran calling for another review of the death of Zahra Kazemi, and an attempt to again exchange ambassadors. Canada rejected two Iranian candidates after Canadian intelligence suggested they may have been involved with the radical student uprising that stormed the U.S. embassy in 1979. Iran then refused to review the credentials of the Canadian candidate John Mundy, an act which Canada's Foreign Affairs Minister Maxime Bernier claimed was "retaliation for Ottawa's rejection of Iran's top choices". He was later expelled from Tehran.
In 2010, amendments to the Special Economic Measures Act of 2004 restricted financial transactions and economic activities between Canada and Iran that are considered beneficial to the Iranian government. In response to the Act, Toronto-Dominion Bank closed a number of accounts of Iranian-Canadian customers to comply with the sanctions.
Having already imposed a seties of trade sanctions in 2012, Foreign Affairs Minister John Baird imposed additional bans and froze all remaining trade with Iran. This came at a time when bilateral trade was worth around C$135 million ($130 million USD). This was enacted in protest the Tehran's nuclear ambitions and human rights record. Baird was quoted as saying, "The absence of progress ... leads Canada to ban effectively immediately all imports and exports from Iran". Statistics Canada's data for 2012 reveals exports to Iran were worth around C$95 million, mostly consisting of cereals, oil seeds, and fruit, as well as chemical products, and machinery. Iranian exports totaled C$40 million, with fruits, nuts, and textiles being most prevalent. Baird delivered his message to an approving audience in Washington at the annual conference of the American Israel Public Affairs Committee. Baird won an extended standing ovation for reiterating the government’s view that Iran’s pursuit of a nuclear weapon is the most dangerous threat to global security.
While Baird’s premise is to increase pressure on it until its government either surrenders or collapses, the United States, United Kingdom, France, and Germany have taken a different approach. They are committed to negotiation with Iran’s current government, and are willing to accommodate legitimate Iranian interests. Their aim is to settle the nuclear issue, reintegrate Iran into the international economy, and support Iranian reform. Their approach is fully consistent with support for Iranian human rights. In 2003, after years of patient negotiation between Iran and the European Union, Iran agreed to all of this and also made a direct overture to the United States. The agreement lasted until 2005, when Ayatollah Khamenei became convinced that Europe was negotiating in bad faith and only acting for the United States, who remained unambiguously hostile.
2012 embassy closures
On September 7, 2012 (during APEC Russia 2012 summit), Canadian Minister of Foreign Affairs John Baird announced that Canada was breaking diplomatic relations with Iran. Canada severed diplomatic ties with Iran and closed its embassy in Tehran, citing Iran's material support to Syrian President Bashar al-Assad's regime, non-compliance with United Nations resolutions regarding its nuclear program, continuing threats to Israel, and fears for the safety of Canadian diplomats following attacks on the British embassy in Iran in violation of the Vienna Convention. In addition, Canada formally listed the Iranian regime as a state sponsor of terrorism under the Justice for Victims of Terrorism Act. The Canadian Department of Foreign Affairs and International Trade advised all Canadians against traveling to Iran. Consular services would be assured by the Embassy of Canada in Ankara, Turkey and the department's Emergency Watch and Response Centre. Ten Canadian diplomats had already left Iran when Canada announced the closure of its embassy. This move was another step by Canada to isolate Iran in addition to economic sanctions. Canadian Prime Minister Stephen Harper was quoted as saying that the Iranian government is "unambiguously, a clear and present danger", and that "the appeal of our conscience requires us to speak out against what the Iranian regime stands for." Calling Iran "the most significant threat to global peace and security in the world" - Canada's foreign affairs office issued a statement listing grievances with Iran. According to a 2012 BBC World Service poll, only 9% of Canadians view Iran's influence positively, with 81% expressing a negative view. In the Calgary Herald, Baird clarified that he ‘views the government of Iran as the most significant threat to global peace and security in the world today.’”, The Canadian embassy in Tehran remains closed, and Iranian diplomats were declared personae non gratae, ordering them to leave Canada within five days. James George, who served as Canada’s ambassador to Iran between 1972 and 1977, disagreed with Baird, saying “It’s stupid to close an embassy in these circumstances.”
After Canada's announcement of closure, a note written in Persian was posted on the door of Iran's embassy in Ottawa that noted: "Because of the hostile decision by the government of Canada, the embassy of the Islamic Republic of Iran in Ottawa is closed and has no choice but to stop providing any consular services for its dear citizens."
Ramin Mehmanparast, spokesman of the Iranian Ministry of Foreign Affairs described this development as "the hostile" action of the "racist government in Canada", which is following "the pursuit of Zionist and British dictated policies."  In addition, the ministry described the Canadian decision as "an abuse of international law" and alleged that Canadian Prime Minister Stephen Harper's government is known for "extremist and failed policies." The ministry also said that Canada is a "threat to international security and stability." A senior Iranian lawmaker, Chairman of the Majlis (parliament) Committee on National Security and Foreign Policy Alaeddin Boroujerdi, alleged that "Canada is under the control of Britain, the 'governor' appointed by the British queen," and that Canada was "blindly" following Britain.
On September 26, 2012, Iranian Foreign Ministry advised all Iranian citizens against traveling to Canada due to increasing Islamophobia and Iranophobia. Furthermore, the ministry said that they have been cases of arrests and expulsions of Iranian expatriates under various pretexts and Iranians are deprived of their basic rights to continue with their ordinary activities, including the right to access their banking accounts and do ordinary transactions and that Iranians are murdered but not investigated in any significant way by Canadian police.  
Israeli Prime Minister Benjamin Netanyahu praised Canada for the decision, calling it a "moral, courageous step" which sends a message to the international community that it can not allow "the dark regime in Iran to get nuclear weapons." Netanyahu called on other members of the international community to follow Canada's lead and "set moral and practical red lines" to Iran.
As of 17 September 2012, Canadian interests in Iran are represented by the Italian Embassy in Tehran. On October 22, 2013, Oman agreed to serve Iranian interests in Canada at its embassy in Ottawa after providing services (July 2012 - October 2013) for the UK.
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