New Ontario Tax Disclosure Obligations – Corporate Ownership Tracking Requirements for “Individuals with Significant Control”

According to the 2021 Ontario Economic Outlook and Fiscal Review, released on November 4, 2021 by the Minister of Finance, Ontario is proposing legislative amendments to the Ontario Business Corporations Act (the ‘OBCA’) in order to combat financial crimes.

Such amendments, if enacted, would be effective January 1, 2023 and would introduce beneficial ownership information requirements as a means of preventing and better detecting the use of corporations for tax evasion, money laundering, or other illicit financial activities.

These proposed modifications to Ontario’s legislation come on the heels of similar changes to the Canada Business Corporations Act (the ‘CBCA’) on the federal level and British Columbia’s Business Corporations Act.

The amendments, if implemented, would require privately-held provincially-registered corporations to collect and maintain beneficial ownership information with respect to “individuals with significant control” (‘ISC’) that can be provided on request to regulatory authorities such as tax authorities, law enforcement, the Ontario Securities Commission, and other regulatory authorities as may be defined in the legislation. Corporations would not be required to file such information externally but would be required to update this information in their own records each fiscal year and within 15 days of any changes.

To what corporations will the new requirements apply?

Although it has not been explicitly stated, the likelihood is that the new requirements will apply only to privately-held corporations registered under the OBCA, and not to reporting issuers, since comparable information is collected for those entities by other means.

Who will constitute an Individual with Significant Control?

An ISC would be defined as an individual who:

• Owns, controls, or directs 25 per cent or more of the voting shares of the corporation or shares that are worth 25 per cent or more of the fair market value of all outstanding shares of the corporation; or
• Has direct or indirect influence over the corporation without owning at least 25 per cent of the shares.

As an anti-avoidance measure, a person would also be captured as an ISC if they own or control a significant number of shares jointly with other people. In addition, if a group of related persons collectively controls at least 25 per cent of the shares of a corporation, then each person would be an ISC. A related person would include an individual and their spouse, son or daughter, or any other relative living in the same house.

What information will need to be maintained by corporations?

Corporations would need to maintain the following information on each ISC:

• Name, date of birth and address;
• Jurisdiction of residence for tax purposes;
• Date of becoming or no longer being an ISC;
• A description of how the individual has significant control over the corporation, including a description of any interests and rights in shares of the corporation; and
• A description of the steps the corporation takes to keep this information current each year.

What are the non-compliance risks and who can access the beneficial ownership information?

The issues of what repercussions corporations that fail to comply with these new requirements would face and who can access such beneficial ownership information have yet to be addressed by the Ontario government as of the date of writing. However, we note that the penalties for non-compliance and authorization to access ISC information in the Ontario legislation could turn out to be similar to those imposed at the federal level. Under the federal requirements, non-compliance can result in a fine to the corporation of up to $5,000. Furthermore, a corporation’s directors, officers, or shareholders who knowingly authorize, permit, or acquiesce in the contravention of the new requirements or knowingly record or provide false or misleading information in relation to the ISC are personally liable for a fine of up to $200,000, imprisonment for a term of up to six months, or both. Under the federal requirements, currently law enforcement and the Canadian Revenue Agency may access the ISC records in the course of an investigation.

Next Steps

In anticipation that these proposals will become law in the near future, and from a practical point of view, corporate secretaries ought to prepare and circulate a questionnaire to each registered shareholder shown on the records of private corporations to identify individuals with significant control and such results should be kept in the minute books of the corporations or in other easily accessible data-bases.

At Sotos LLP, our team of experts has been advising businesses on their legislative obligations for decades. If you wish for more information regarding your Ontario private corporation’s new obligations under the proposed changes to the OBCA, contact Lou Alexopoulos at lalexo@sotos.ca,  416.977.5024 or Lauren Huxtable at lhuxtable@sotos.ca, 416.977.5333×358.