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By: Florence Marino B.A., LL.B., TEP | Vice President, Tax & Estate Planning

In a recent report published by STEP entitled “Tackling Economic Crime”, an analysis of existing measures to combat financial crime gave an excellent snapshot of the global framework of tax transparency measures and recommended standards for countries to combat money laundering, terrorist financing and tax evasion.  It stated that measures such as the US FATCA (Foreign Account Tax Compliance Act) in 2010 and the CRS (the Common Reporting Standard designed by the Organization for Economic Cooperation and Development (OECD)) in 2014 have enabled tax authorities to obtain information about beneficial owners of trusts and corporate entities established outside their jurisdiction that benefit tax residents of their jurisdiction.  This information is then matched up against tax returns for their tax residents to ensure compliance with domestic tax rules. 

Canadian measures involving capturing beneficial ownership information are coming from  and are in response to these global trends.  While these measures stem from the legitimate need for law enforcement and tax authorities to prevent financial crimes there is a constant tension between serving these legitimate purposes and the right to privacy.  Also, there are the valid concerns of taxpayers who incur costs to comply with these often rigorous requirements when “there’s nothing there to see.” 

An update on corporate transparency information requirements in Canada

Effective January 22, 2024, private corporations governed by the Canada Business Corporations Act (CBCA) are required to publicly disclose individuals with “significant control” (ISC) and maintain this information annually and within 15 days of becoming informed of changes affecting what is on the register.  Transparency registers are not a new concept in Canada which have been required by the CBCA since 2019.  What’s changed is that in addition to detailed information being maintained on a private register in a corporation’s books and records, disclosure of a subset of the required information has to be made on a public register. 

Provincially, with the exception of Alberta, most provinces have private registry requirements – meaning that detailed information about ISC’s must be maintained by corporations as part of their obligations to keep books and records.  Only Quebec has a public register at this time.

Recently, STEP was successful in lobbying to limit the search function on the CBCA public register so that searches could not be made by an individual’s name but rather only by corporate name or business number).  What information is on the public CBCA register:

  • full legal name,
  • address for service (or residential address),
  • when status as ISC started/ended, and
  • a description of how they have significant control. 

Private registers would also contain more details in addition to the above such as:

  • ISC’s date of birth,
  • the country (countries) of citizenship,
  • country (countries) where ISC is considered a resident for tax purposes,
  • residential address (even if an alternate address is designated publicly). 

All information on the private register is available to certain investigative bodies upon request.  This includes the CRA. 

An ISC is generally defined as an individual with control over a “significant number of shares” which the CBCA defines as 25% of votes or fair market value (FMV). This can be problematic in some very common situations.  For example, in a typical estate freeze situation, as the FMV of common shares increases post-freeze, children may become ISC’s as the FMV of their position rises.  Little guidance is provided regarding how to establish FMV and what is sufficient for these purposes. 

Control can be direct, by beneficial ownership or indirect control or direction.  Where a trust owns shares, the general guidance from Canada Corporations about who would have control over the trust (and therefore potentially be an ISC) sounds similar to a central management and control test used to establishing residency of a trust under the Income Tax Act.  More guidance would be useful.

The definitions and details may vary by jurisdiction of incorporation resulting in different ISC’s depending on the jurisdiction within a corporate group.  Uniformity of requirements would be a helpful development especially if Ontario and other provinces move to make their private registry requirements public – which is widely expected.

Why this is of interest to us

Privacy and confidentiality of personal data are big concerns for business families.  At this moment in time, it appears that the push for more transparency regarding beneficial ownership to combat financial crimes is outweighing the right to privacy.

FOOTNOTE:

This publication is protected by copyright. Tompkins Insurance is not engaged in rendering tax or legal advice. TOMPKINSights contains a general discussion of certain tax and legal developments and should not be construed as tax or legal advice.

Should you wish to discuss this or any other TOMPKINSights article, please contact
florence@tompkinsinsurance.com

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