Starting June 2019, under the legislative changes to Canada Business Corporations Act all the corporations federally incorporated in Canada must maintain a Register of Individuals with Significant Control.
While some consider this is an additional burden on the small business owners, the purpose of these beneficial ownership rules is to increase corporate transparency and to help law enforcement agencies to combat pressing issues like tax evasion and money laundering.
Initially, at this point of time, this is a requirement for the Federally incorporated Canadian corporations, however, provinces are moving forward with their own legislations to implement similar corporate transparency measures. So far, British Columbia, Manitoba, Saskatchewan and Quebec have already enacted rules for the disclosures of beneficial ownership.
What are the new rules for beneficial ownership?
Canada Business Corporation Act (CBCA) requires all the federal corporations to maintain a Register of Individuals with Significant Control.
Who is an Individual with a Significant Control?
An individual is considered having significant control (ISC) if (s)he owns significant of shares. Significant number of shares are either 25% of all the voting shares or 25% of all the shares as per the fair market value of the shares.
An individual can either own the significant number of shares (ownership, control or ability to direct voting) or has a significant influence over the business. If the individual who owns less than 25% of voting shares but has an agreement with other shareholders to use the voting in the same way and this group collectively owns significant number of shares is also considered to be an individual with significant control.
What should be maintained in the Register of Individuals with Significant Control?
Register of Individuals with significant control can be maintained as a logbook, a spreadsheet or a database containing the information about the individuals who have significant control as explained above.
Information to be maintained in this register is; name of individual, date of birth, address, country of tax residence of ISC, start date of control and the end date of control.
Corporations Canada provide a template for such a register which can be simply downloaded here. If you own a small business and are the only owner, you can fill up this template, print it and save it. If you have more than one ISC, you can add multiple rows and complete the register. For corporations with multiple shareholders, there might be external help needed to determine ISCs.
How to create the Register of Individuals with Significant Control?
Corporations Canada have made this very easy by explaining the process. Simply follow the three steps:
- Identify the individuals with significant control by asking all the shareholders of the corporation.
- Record the information in the Register
- Update the register, at least once a year. See below.
How frequently the Register of Individuals with Significant Control needs to be updated?
A corporation needs to update the register at least once a year to make sure the information is up-to-date. Add the new individuals within 15 days of becoming aware of him/her becoming an individual with significant control.
Initially, this register needs to be on hand along with corporate records and there is no such requirement to report this information.
What are the obligations of shareholders when asked to provide this information?
When shareholders are asked to provide information to the corporation for the purpose of maintenance of this register, they are obligated to respond and provide this information as soon as possible.
Who can access the register of individuals with significant control?
Register of ISC is not required to be disclosed to public. Whenever requested, corporation must disclose the register to; its shareholders and creditors (they must provide an affidavit), investigative bodies/law enforcement agencies and Corporations Canada.
Sometimes, your bank may require this information and they can be provided with the same register.
What are the penalties for non-compliance to new beneficial ownership rules?
If a corporation does not create a register, keep it up-to-date or is not provided when requested there are significant penalties. These penalties include fines up to $200,00- and six-months imprisonment.
Though this is a requirement for federal corporations only at this time but as mentioned before provinces are moving forward with their own legislation and similar measures will be applicable for provincial corporations sooner or later. It is advised to maintain such a register for all the corporations.
Disclaimer: This post is not being updated since it is first published. This post is for informative purposes and cannot be considered as a legal or tax advise. Sometimes, determining fair value or beneficial ownership are some of complex corporate issues and need professional assistance. If you are looking for a professional assistance with your compliance requirement, you can reach to us. Whether you are looking for corporate tax accountant in Toronto, Ontario for compliance of your own corporate or you are an individual with significant control of a Canadian Corporation needing tax advise, you can take advantage of our Tax Services Canada and US.