Corporate transparency has been pushed to the top of the global agenda throughout the international community. Many countries and international organizations are asking governments to legislate the transparency of corporate ownership to help in the continuing fight against money laundering, terrorist financing, and tax evasion and avoidance. The Panama Papers and Bahamas leaks of 2016, and the Paradise Papers release of 2017, highlighted how corporate vehicles (e.g. companies and trusts) can be used to conceal the true ownership of assets for the purposes of those illicit activities.
In response, and as part of a concerted effort to keep up Canada’s compliance with international standards set out by the Financial Action Task Force, the Canadian government has made significant changes to create more transparency with corporations and trusts. In December 2017, federal, provincial and territorial finance ministers agreed in principle to pursue legislative amendments to their corporate statutes to require corporations to hold accurate and up-to-date information on beneficial owners, and to eliminate the use of bearer shares.
The federal government first introduced legislation in the 2018 federal budget to implement additional trust reporting requirements taking effect for taxation years ending after December 30, 2021 (see February 2019 Tax Alert ). The additional trust information being reported directly to the Canada Revenue Agency will allow the CRA to ascertain beneficial and controlling interests of various trusts.
On December 13, 2018, the federal government passed Bill C-86 containing legislative changes to the Canada Business Corporations Act (CBCA) requiring federally incorporated companies to maintain registers of individuals with significant control.
Corporations that may be affected by these new rules, which come into effect June 13, 2019, can consider these answers to some of the more frequently asked questions:
1. What information must be included in the register?
A corporation shall prepare and maintain a register containing the following information for each individual with significant control over the corporation:
- name, date of birth and the latest known address;
- the jurisdiction of residence for tax purposes;
- the day the individual became or ceased to be an individual with significant control;
- a description of the significant control over the corporation; and
- any other prescribed information.
2. What is meant by an individual with “significant control”?
An individual with significant control over a corporation is:
- an individual who has any of the following interests or rights, or any combination of them, in respect of a significant number of shares of the corporation:
- the individual is the registered holder of them;
- the individual is the beneficial owner of them; or
- the individual has direct or indirect control or direction over them;
- an individual who has any direct or indirect influence that, if exercised, would result in control in fact of the corporation; or
- an individual to whom prescribed circumstances apply.
3. What does “significant number of shares” mean?
A significant number of shares of a corporation is:
- 25 per cent or more of the corporation’s voting rights; or
- 25 per cent or more of the fair market value of the corporation.
4. What if two or more individuals have joint ownership or control? Are all individuals included in the register?
If two or more individuals have significant control over a corporation, each individual is considered to have significant control and must be added to the registry. Two or more individuals are each considered to be an individual with significant control over a corporation if, in respect of a significant number of shares of the corporation,
- an interest or right, or a combination of interests or rights giving significant control is held jointly by those individuals; or
- a right, or a combination of rights, giving significant control is subject to any agreement or arrangement under which the right or rights are to be exercised jointly or in concert by those individuals.
5. Is there any other documentation needed?
The preparation and maintenance of the register must contain a detailed description of the reasonable steps undertaken to identify individuals with significant control and to ensure that the information gathered is accurate, complete and up-to-date.
6. How must the company update the information, and how often?
The company must take reasonable steps at least once a year to update the register. There is no specific anniversary date, as long as the update takes place once a year. Any changes identified must be updated to the register within 15 days.
7. Is the register sent to a government authority?
The register is not required to be submitted to any government authority at this time. Rather, the corporation shall keep the register at its registered office or at any other place as designated by the directors, as long as it is in Canada.
8. Are shareholders compelled to provide information?
If the corporation requests information for the register from a shareholder, the shareholder shall, to the best of their knowledge, reply accurately and completely as soon as feasible. A shareholder who knowingly contravenes a request for information commits an offence and is liable to a fine up to $200,000 or to imprisonment for up to six months, or to both.
9. When shall a corporation discard shareholder information from the register?
Within a year after the sixth anniversary of the day an individual no longer has significant control over a corporation, the corporation has to dispose of that individual’s personal information, as defined in the Personal Information Protection and Electronic Documents Act. This is subject to any other act of Parliament and any act of the legislature that provides for a longer retention period.
10. Can a corporation be fined for not complying?
A corporation that, without reasonable cause, contravenes this section (21.1) is guilty of an offence and liable to a fine up to $5,000.
11. Are all corporations subject to these rules?
Only federal corporations incorporated under the CBCA are governed by these rules. In addition, some other corporations are exempt from maintaining the register, including:
- a reporting issuer or an émetteur assujetti under an Act of the legislature of a province relating to the regulation of securities;
- a corporation listed on a designated stock exchange, as defined in subsection 248(1) of the Income Tax Act; or
- a member of a prescribed class.
12. Who can have access to and use of the information?
Access to information:
- A corporation shall disclose to the Director, on request, any information in its register.
- Shareholders and creditors of the corporation or their personal representatives can request access to the register. This is done on application with the following information:
- the name and address of the applicant (for corporate applicants, the name and address for service of the corporation completed by a director or officer); and
- a statement that any information obtained will not be used except as permitted.
Use of information:
- Information obtained by shareholders or creditors shall not be used by any person except in connection with
- an effort to influence the voting of shareholders of the corporation;
- an offer to acquire securities of the corporation; or
- any other matter relating to the affairs of the corporation.
13. Can a person be fined or imprisoned for improper use of information?
A person who, without reasonable cause, improperly uses the information is guilty of an offence and liable to a fine up to $5,000 or to imprisonment for up to six months, or to both.
14. Can a director or officer be held liable on behalf of the corporation?
A director or officer of a corporation commits an offence if they knowingly authorize, permit or acquiesce in:
- the contravention of the register;
- the recording of false or misleading information in the register; or
- the provision to any person or entity of false or misleading information in relation to the register.
Directors and officers may be liable to a fine up to $200,000 or to imprisonment for up to six months, or to both.
The new reporting rules place a burden on the corporation and its directors, officers and shareholders to ensure a complete and accurate register. It is important to understand the rules to ensure the company is in compliance. Your Baker Tilly advisor can help make sure your company complies. Contact us for more information.
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