Canada: Bill C-377 May Inadvertently Impose Costly Reporting Requirements On Investment Funds

On June 30, 2015, Bill C-377, a private member's bill that is intended to mandate disclosure of union financial activities, received Royal Assent (S.C. 2015 c.41).  Subject to certain exceptions, this controversial bill adds a provision to the Income Tax Act (Canada) which will require "labour organizations" and "labour trusts" to provide extensive disclosure regarding their financial activities to the Canada Revenue Agency.  According to the legislation, the Canada Revenue Agency will make this disclosure available to the public, including by way of "publication on the departmental Internet site in searchable format".  These reporting requirements will apply to fiscal periods beginning after December 31, 2015.

This legislation is of potential concern to the investment fund industry principally because of the breadth of the definition of a labour trust which reads as follows:

"labour trust" means a trust or fund in which a labour organization has a legal, beneficial or financial interest or that is established or maintained in whole or in part for the benefit of a labour organization, its members or the person it represents.

Based on a literal interpretation of the "labour trust" definition, any investment fund in which a labour organization has made a financial investment could be subject to these rules.  Similarly, the "labour trust" definition could also capture any investment fund in which a member of a labour organization holds an interest. While it is unlikely that the definition of labour trust (and by extension, the legislation as whole) was intended to apply so broadly, the wording of the definition makes it difficult to interpret the legislation in a more circumspect manner.  The Investment Funds Institute of Canada (IFIC), among other organizations, submitted comments on the bill which passed without any amendment to address this issue. The breadth of the definitions of "labour trust" and "labour organization" also raises the possibility of their applying to non-residents. To our knowledge, neither the Department of Finance nor the Canada Revenue Agency has commented officially on the potential scope of this legislation.

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