Canada's federal beneficial ownership transparency provisions are changing. Since 2019, most Canada Business Corporations Act (CBCA) corporations have been required to create and maintain registers of Individuals with Significant Control ("ISC Registers"). Now the federal government is clarifying certain existing requirements and adding new ones. One change that has attracted attention would – once in force and with certain exceptions – require information from ISC Registers to be submitted to the Government for publication in a public database.
Other changes, some of which are still proposals making their way through the legislative process, include:
- Exempting wholly-owned subsidiaries of public companies from the requirement to maintain an ISC Register;
- Clarification of the "reasonable steps" that must be taken to identify Individuals with Significant Control ("ISCs");
- Providing for future regulations that may define key concepts such as "control in fact";
- Adding citizenship and a residential address to the information that must be obtained for each ISC;
- Rules relating to the submission of ISC Register information to the Government;
- Whistleblower protection provisions;
- Significantly greater investigative powers for the Director of Corporations Canada; and
- Information-sharing with the CRA with respect to information about private companies.
Topics Covered in this Post
The main sections of this post are as follows:
- The new legislation and regulations
- Existing requirements that are being fine-tuned
- New provisions on investigations and information sharing
- Requirement to submit information to Corporations Canada
- Public access requirement
- Going forward
The New Legislation and Regulations
The changes to the federal transparency regime are contained in two distinct initiatives:
- Amendments to the Canada Business Corporations Regulations, 2001 ("CBCA Regulations"), which took effect on May 4, 2023; and
- The Bill C-42 amendments to the CBCA ("CBCA Amendments"), which are still under consideration in Parliament. Bill C-42 passed First Reading on March 22, 2023 and MPs' speeches delivered on Second Reading on March 31, 2023 suggest strong all-party support for the legislation.1 Nevertheless, the final form of Bill C-42 (the CBCA Amendments) may differ from the First Reading version described in this post.
Over the longer term, the Government of Canada plans to make its public registry open to any province that wishes to use it for its provincially incorporated corporations, with the goal of creating a single, integrated platform on which beneficial ownership can be searched across multiple federal, provincial and territorial jurisdictions. It is currently seeking provincial buy-in for this plan. Even if not all provinces join this effort, some may create their own public registers, as Québec already has. The ultimate intentions of Alberta, the only province that has not introduced transparency legislation, may become clearer after the May 29, 2023 provincial election.
Existing Requirements That Are Being Fine-Tuned
Before considering the new elements that the Government is introducing into the transparency law – submission of data to Corporations Canada, public access to that data and whistleblower protections – it is important to note the changes and clarifications that are being made to the existing requirements, which include the following:
- Subsidiaries of most public companies are now exempt;
- The "reasonable steps" that must be taken to identify ISCs are described more precisely;
- Some additional information must now be collected about a corporation's ISCs; and
- Provision has been made for definition, by regulation, of several key concepts in the legislation.
Subsidiaries of most public companies now exempt
As passed in 2019, the CBCA transparency register requirements did not exempt subsidiaries of public companies from the register requirement even though their parent companies were already subject to extensive disclosure requirements. The new s. 34 of the CBCA Regulations exempts wholly-owned subsidiaries of federal and provincial business corporations that are:
- Reporting issuers under provincial securities laws; or
- Listed on a "designated stock exchange", a term that includes most of the world's significant exchanges.
Note that s. 34 applies to subsidiaries of both Canadian and foreign public companies. This corrects an oversight in the draft version of the amendment to the CBCA Regulations, under which the exemption would not have applied to wholly-owned subsidiaries of foreign public companies. A similar exemption in s. 34 that applies to subsidiaries of Crown corporations does not apply to subsidiaries of similar entities outside Canada.
"Reasonable steps" clarified
Section 21.1(2) of the CBCA currently requires that the corporation take "reasonable steps" at least once per year to ensure the accuracy of its ISC Register entries, which list the corporation's "individuals with significant control" (ISCs) and certain information about them. Because the term "reasonable steps" was not defined in the original legislation, CBCA corporations have sometimes been uncertain about the sufficiency of their efforts. The amendments to the CBCA Regulations have clarified some of these issues, with the promise of further guidance to come, as follows.
Who to ask
According to s. 33(1) of the amended CBCA Regulations, "reasonable steps" include sending requests for information to each of the following:
- Existing ISCs;
- Shareholders; and
- Other persons whom the corporation has reasonable grounds to believe may have "relevant knowledge" with respect to an ISC (and to persons who may have relevant knowledge about those persons).
What to ask
All requests for information should ask for contact information about persons in the last of the three categories above. In addition:
- the notice to existing ISCs should ask them whether there are any changes in the information that is currently recorded in the register; and
- the notice to shareholders should ask them whether or not they have become ISCs of the corporation.
Responses to these questions are to be requested "as soon as feasible" and each person is to answer "to the best of their knowledge".
Guidance from ISED
Innovation, Science and Economic Development Canada ("ISED") is planning to publish a template request for information, although details have yet to be released.
More information required about ISCs
The CBCA Amendments are proposing three significant changes to the information that is recorded in a corporation's CBCA ISC register:
- The ISC's residential address must be listed;
- An address for service may be listed; and
- The ISC's citizenship must be listed.
Previously, the requirement for an address did not specify a particular type of address. As noted below, if no address for service is provided, the ISC's residential address will appear in the public version of the register, so most ISCs will want to include an address for service.
Definitions for other key concepts
Several other key concepts, in addition to "reasonable steps", could in future be defined by regulation, under authority granted to the Governor in Council under the proposed s. 261(1)(a.2) of the CBCA. These concepts include:
- Direct influence;
- Indirect influence; and
- Control in fact.
To date, no definitions for these terms have been publicly proposed.
New Provisions on Investigations and Information Sharing
The CBCA Amendments would amend s. 237 of the CBCA to give the Director the authority not only to make inquiries of any person (as s. 237 currently states) but also to require the person to provide "any records or other documents or information" as well as to require a response to any inquiry. This provision would not be restricted to ISC Register compliance.
Sharing tax information
Bill C-42 proposes to amend the Income Tax Act, adding a new paragraph 241(4)(u) under which ISED (Corporations Canada) would be authorized to request and receive – solely for the purpose of verifying and validating ISC Register information submitted under the proposed new s. 21.21 in respect of a private corporation – a variety of taxpayer information, including:
- With respect to a corporation (the "Related Corporation") that is related to, or associated with, the corporation for which the ISC Register information was submitted (the "Submitting Corporation"), the Related Corporation's name, business number and jurisdiction of residence, as well as its relationship with the Submitting Corporation including details of the Submitting Corporation's shareholdings; and
- With respect to shareholders holding 10% or more of any class of the capital stock of the Submitting Corporation, each shareholder's name, its legal status (individual, corporation, trust or partnership), the percentage of each class of capital stock that it owns, and its social insurance number, business number, trust account number or partnership number (as the case may be).
The proposed amendments protect whistleblowers by forbidding the release (other than to FINTRAC or an investigative body referred to in s. 21.31(2)) of any information that could reasonably be expected to reveal the identity of someone who voluntarily provides information about the commission or potential commission of a wrongdoing, unless the person consents. In this context, "wrongdoing" refers not only to a contravention of the CBCA or its regulations but also to:
- The formation of a corporation for a fraudulent or unlawful purpose; and
- Any fraudulent or dishonest actions of person concerned with the formation, business or affairs of a corporation.
Requirement to Submit Information to Corporations Canada
In a major policy change, the information gathered for the ISC register would, once the CBCA Amendments are in force, no longer be held exclusively by the corporation itself. Instead, under the proposed s. 21.21(1)(a), the corporation would be required, on an annual basis, to provide the Director of Corporations Canada with such information from the Register as the Director required.2 Some details relating to this process have yet to be clarified, including:
- The specific information from the ISC register that the Director will require (see additional discussion below);
- The timeline for providing the information; and
- The format in which the information may be submitted.
Annual and periodic updates
In addition to the annual update, the corporation would be required (once the CBCA Amendments are in force) to send the Director any information from any periodic updates that are made to the records of individual ISCs over the course of each year (to the extent that such information is among the information that the Director requires). This information would be required to be sent within 15 days after the day on which it is recorded in the register (which must in turn happen within 15 days of the corporation's having become aware of the information – so the time limit for submission appears to be, at most, 30 days in total). Finally, the CBCA Amendments specify that a corporation that is newly incorporated, continued or amalgamated must submit the information that the Director requires within a period to be determined by the Director. (see proposed s. 21.21(1)(b) and s. 21.21(2))
The CBCA Amendments would allow a fee to be charged (in an amount to be established by regulation) in relation to the receipt, examination, filing, issuance or copying of any submitted information. (s. 261(1)(b))
Penalties, including dissolution
In addition to penalties for directors and officers who knowingly authorize, permit or acquiesce in the contravention of the reporting requirements, a corporation would be subject (once the CBCA Amendments are in force) to dissolution by the Director if it failed to comply with the requirements relating to the submission of information (including periodic updates) (proposed s. 212(3.1)) or if it were in default for one year (proposed s. 212(1)(a)(iii).
While maximum penalties for offences relating to directors and officers would not be increased from the existing maximum of $200,000 or 6 months in prison, the press release surrounding the CBCA Amendments underscores the "strong compliance regime" that has been put in place, possibly signalling an intention to impose administrative sanctions and criminal penalties more readily than has previously been the case. The offences for which directors and officers are potentially liable would be expanded under the CBCA Amendments to include authorizing, permitting or acquiescing in the corporation's failure to submit the required information to the Director.
Registers will continue to be kept by the corporation
It should be noted that nothing in the CBCA Amendments would limit the corporation's obligation to maintain its ISC Register internally. In other words, information from the Register would be shared with the federal government, but the Register would continue to be kept by the corporation itself.
Public Access Requirement
Form of public access
The CBCA Amendments do not provide significant direction with respect to the nature of the public access that the Director would be required to provide, beyond the general requirement that the submitted information be made available to the public, with certain limitations as discussed below.
Information to be made public
While, as noted above, the proposed new s. 21.21(1) ostensibly gives the Director discretion to determine which information from the ISC Register must be submitted to the Government, that discretion appears to be circumscribed by the proposed s. 21.303, which requires the Director to provide public access to the following submitted information for each ISC:
- Address for service (if provided);
- Residential address (otherwise);
- Date on which the individual became or ceased to be an ISC;
- Description of how the individual is an ISC, including his or her rights and interests in the corporation.
The Director would not have discretion to expand this list, although additional categories could be prescribed through the regulatory process.
Note that if no address for service is provided, the ISC's residential address would be included in the public register. It is therefore important for CBCA corporations to review their registers and add an address for service for any ISC who does not want his or her residential address made public.
Exemptions for minors, those with safety concerns, incapable persons and others
Under the CBCA Amendments, information relating to persons under the age of 18 years could not be disclosed to the public. In addition, the proposed s. 21.303(3) would allow individuals with safety concerns, incapable persons, public office holders (with respect to certain Conflict of Interest Act disclosures) or other prescribed persons to apply to the Director to have some or all of their ISC Register information withheld from the public. Such requests could be granted if the Director was satisfied that the appropriate conditions had been met – for example, that there is or would be a "serious threat to the safety of an individual".
Under the proposed s. 262.2, the Director would be required to publish a public notice of any decision to grant such a request, but under a proposed amendment to s. 266(1), copies of the request itself (or of any related documentation) will not be made available to members of the public.
The proposed s. 21.303(2) provides for the possibility of further exemptions by regulation.
While it is not certain when the CBCA Amendments will be passed by Parliament, or whether they will be revised before being finalized, there appears to be broad all-party agreement on the need for them and it is therefore highly likely that they will be passed. As we await Parliament's further consideration of this legislation, CBCA corporations should take the opportunity to review their ISC Registers to ensure that they are up to date and ISCs should ensure that an address for service is provided and may also wish to consider whether an exemption might be available to them.
1 Some of the Bill C-42 amendments supersede amendments that were passed in 2022 as Division 30 of Bill C-19 but never implemented.
2 This requirement was first created under Bill C-19, but was not proclaimed in force. The current CBCA Amendments would replace the relevant provision from Bill C-19 with a similar but slightly more detailed one.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.