Canadian Beneficial Ownership Rules

Starting from June 2019, the Canada Business Corporations Act mandates that all federally incorporated corporations in Canada must keep a detailed register of individuals who exert significant control over the company. This initiative aims to enhance corporate transparency and support law enforcement in tackling issues such as tax evasion and money laundering. 

Although currently applicable only to federally incorporated entities, various provinces are advancing their legislation to introduce similar transparency measures. British Columbia, Manitoba, Saskatchewan, and Quebec have already implemented regulations for disclosing beneficial ownership. 

Understanding the New Beneficial Ownership Regulations: 

The Canada Business Corporation Act (CBCA) stipulates that federal corporations must maintain a Register of Individuals with Significant Control (ISC). An ISC is defined as an individual who either owns a significant portion of the voting shares (25% or more) or holds a similar percentage of shares by fair market value. This also includes individuals who, despite owning less than 25% of the voting shares, exert significant influence through agreements with other shareholders. 

Contents of the Register of Individuals with Significant Control: 

The register may be kept as a logbook, spreadsheet, or database and should include the ISC’s name, date of birth, address, tax residency, and the start and end dates of their significant control. Corporations Canada offers a template for this register, which can be easily filled out by single owners or with the help of external assistance for corporations with multiple shareholders. 

Creating and Updating the Register: 

Corporations Canada outlines a simple three-step process for creating the register: 

• Identify the ISCs by consulting all shareholders. 
• Record their information in the register. 
• Update the register at least annually, adding new ISCs within 15 days of recognizing them. 

Access to the Register: 

The register is not public but must be disclosed upon request to shareholders, creditors (with an affidavit), law enforcement, and Corporations Canada. Banks may also request access to this information. 

Consequences of Non-Compliance: 

Failure to maintain or disclose the register can result in severe penalties, including fines up to $200,000 and imprisonment for up to six months. 

While these rules currently apply only to federal corporations, it is advisable for all corporations to maintain such a register in anticipation of broader legislative adoption. 

Disclaimer: 

This post is for informational purposes only and should not be construed as legal or tax advice. Determining fair value or beneficial ownership can be complex and may require professional assistance. For those seeking compliance assistance or tax advice, professional services are available.