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Ontario’s New Transparency Register: Getting Your OBCA Corporation Ready For January 1, 2023 – Tax Authorities


Under new rules in force as of January 1, 2023, private
corporations incorporated or continued under Ontario’s
Business Corporations Act (“OBCA”) will be
required to maintain a register (“Transparency Register”)
of “individuals with significant control”
(“ISCs”) over the corporation.
The new
rules are part of a global effort aimed at improving corporate
transparency by preventing and detecting the use of corporations
for tax evasion, money laundering or other illicit financial
activities. Ontario’s provisions are similar to those that are
already in force for
federal corporations and
corporations in several other Canadian provinces.

Which Ontario Corporations Must Maintain a Transparency
Register?

All private Ontario corporations will need to
prepare and maintain a Transparency Register (other than private
corporations that are wholly-owned subsidiaries of
a public company). Public companies are
exempt
if they are offering corporations and/or are listed
on a “designated”
Canadian or foreign stock exchange
, which includes most of the
world’s significant stock exchanges. The Ontario Government may
consider additional exemptions in the future.

Corporations should take steps prior to the January 1, 2023
implementation date to gather the information required to prepare
their Transparency Registers. Ontario private corporations with
complex ownership structures, in particular, may want to
get an early start on their ISC analyses.
Our experience
with similar requirements under other corporate statutes is that
identifying ISCs – the people whose information needs to go
on the register – can take time. This is especially true for
stacked corporate structures and structures that include foreign
entities and/or non-corporate entities such as partnerships and
trusts.

What Information is Required in the Transparency Register?

The Transparency Register must record the following information
for each ISC:

  • name, date of birth and last known address;

  • jurisdiction of residence for tax purposes;

  • the date on which the individual became or ceased to be an
    ISC;

  • a description of how the individual is an ISC (including a
    description of the ISC’s rights and interests in respect of the
    corporation’s shares); and

  • any other information that may be required under future
    regulations.

The Transparency Register must also describe the reasonable
steps taken (at least once during each financial year of the
corporation) to ensure the Register is accurate, complete and
up-to-date.

How often does the Transparency Register need to be
updated?

As noted above, the Transparency Register must be reviewed and,
if necessary, updated to reflect changes in a corporation’s
ISCs or their required information at least once during
each financial year
. The update does not have to be
conducted on any particular date or on the same date each year, as
long as there is one update in each financial year. If new
information is discovered in the course of a review, it must be
recorded in the Register within 15 days of the date on which the
corporation becomes aware of it.

In addition to annual updates, Registers must also be updated on
an ad hoc basis whenever
relevant information comes to light, within 15 days of the date on
which the corporation becomes aware of it.

What obligations do the corporation’s shareholders
have?

The legislation requires shareholders to
respond to any related inquiries from the corporation promptly and
to the best of their knowledge, with accurate and complete
information.

Where is the Register kept?

Corporations must keep the Transparency Register at the
corporation’s registered office in Ontario, unless the
directors designate another location in the province.

Who Must Be Listed on the Register?

Information for each individual identified as an
“individual with significant control” of the private
corporation must be included in the Register.

The basic tests

An individual will be considered an ISC of the corporation if
they meet either of the following tests:

  • The individual holds a 25% or greater interest
    in the corporation, either by votes or by fair market value
    (including registered shareholdings, beneficial ownership of shares
    and direct/indirect control or direction over the shares, and also
    including certain joint interests); or

  • The individual has direct or indirect
    influence
    that, if exercised, would give him or her
    “control in fact” of the corporation.

Importantly, the “indirect control”
concept means that an individual at the top of a corporate chain
may be an ISC of entities lower down the chain in which he or she
does not hold a direct personal interest.

If there is no individual identified who meets either of
the tests
, then no one needs to be listed (although a
Transparency Register must still be created and maintained,
describing the steps taken as required under the legislation).

The description above covers the basic considerations, but
the tests have important nuances that are discussed in the
final section of this post
. Note that only individuals can
be ISCs and that it is possible for new classes of ISC to be
created by regulation.

Who Will Have Access to the Register?

The legislation provides for access by the Ontario Government
for compliance purposes, and by law enforcement and regulators for
investigative purposes as they relate to the administration or
enforcement of applicable Ontario or federal laws (or similar laws
of other provinces or of foreign jurisdictions, in certain
circumstances).

Only the following persons may make requests to access an
Ontario corporation’s Transparency Register:

  • the Minister;

  • police forces;

  • tax authorities of Ontario and Canada; and

  • certain specified regulators, including the Ontario Securities
    Commission, the Financial Services Regulatory Authority of Ontario
    and the Financial Transactions and Reports Analysis Centre of
    Canada (others may be designated by regulation).

Other than as described below, the Transparency Register will
not be publicly available, nor do the OBCA provisions require
disclosure to shareholders or creditors.

The Minister

The Minister’s authorized representative may make any
inquiry considered necessary for the purposes of enforcing the
requirement to maintain a Transparency Register and for the making
of required disclosures.

Law enforcement, tax authorities and certain regulators

A request to access a Transparency Register may be made only for
law enforcement, tax or regulatory purposes:

  • Requests from police forces must be “for
    the purpose of conducting an investigation into an offence under a
    law of Ontario or Canada” or to provide information to a law
    enforcement agency outside Ontario for a similar purpose.

  • Requests from tax authorities must be
    “for the purpose of administering or enforcing a law of
    Ontario or Canada that provides for the imposition or collection of
    a tax, royalty or duty”, or to provide information to the
    officials of other jurisdictions to assist in the administration or
    enforcement of a similar law of that jurisdiction.

  • Designated regulators may make requests for
    the purpose of assisting agencies with similar mandates in other
    provinces and foreign jurisdictions. Such requests must be for the
    purpose of administering or enforcing a law for which the
    regulatory body is responsible.

In each case, requests may be made on behalf of entities outside
of Canada only where authorized under an arrangement, written
agreement, treaty or law.

Note that these provisions appear to contemplate requests with
respect to investigations of unrelated entities and do not appear
to require any suspicion of wrongdoing by the corporation
itself.

Penalties

The Corporation

Fines of up to $5,000 for failing, without reasonable cause, to
comply with any of the requirements to prepare and maintain a
Transparency Register, respond to inquiries or meet disclosure
obligations under the legislation.

Directors and officers

Fines of up to $200,000 and/or up to 6 months imprisonment for
knowingly authorizing, permitting or acquiescing in an Ontario
corporation’s failure to perform any of its duties relating to
the creation, maintenance or disclosure of the Transparency
Register, whether or not the corporation has been prosecuted or
found guilty.

The same penalties apply where a director or officer records
false or misleading information in the Transparency Register, or
provides false or misleading information relating to the Register
to any person or entity (or who knowingly authorizes, permits or
acquiesces in any of these acts).

Shareholders

Fines of up to $200,000 and/or up to 6 months imprisonment for
knowingly failing to reply to the corporation’s Transparency
Register requests as required by the legislation).

General

Fines of up to $5,000 for failing, without reasonable cause, to
respond promptly to enforcement inquiries authorized by the
Minister. This could apply to anyone to whom such an inquiry is
made.

Identifying Your ISCs: Detailed Discussion

We noted above that, at the most basic level, an individual is
an ISC if either of the following is true: (i) the individual has
control or direction over a 25% shareholding, or (ii) the
individual has “any direct or indirect influence that, if
exercised, would result in control in fact of the
corporation”. However, there are a number of nuances that can
complicate the ISC analysis for each of these tests:

First test: control or direction over a 25% shareholding

As noted above, an individual will be considered an ISC with
respect to a corporation where the individual holds a 25%
or greater interest
in the corporation, either by votes or
by fair market value. This includes registered shareholdings,
beneficial ownership of shares and direct/indirect control or
direction over the shares.

Combinations of the above are sufficient (e.g. an individual can
meet the 25% threshold by virtue of being the registered holder of
some shares and the beneficial owner of other shares).

Situations involving multiple individuals, including family
groups

The legislation addresses certain situations in which two or
more individuals jointly or collectively hold or exercise rights or
interests in an OBCA corporation, including the following:

  • Where two or more individuals jointly hold rights or
    interests meeting the 25% threshold
    , each of those
    individuals will be considered an ISC.

  • Where a voting agreement or similar
    arrangement
    exists between two or more individuals under
    which individuals agree to exercise any rights that they hold in
    the corporation “jointly or in concert”,
    and those rights collectively meet the 25% threshold, all
    individuals who are party to the agreement or arrangement will
    generally be considered ISCs.

  • An individual may also be considered an ISC by virtue of being
    a member of a family group with interests or
    rights that collectively meet the 25% threshold. Under the
    legislation and definition of “related persons”, such
    groups include spouses and children and potentially other relatives
    if they live in the family home.

In situations such as those described above, each individual who
is identified as an ISC must be included in the Transparency
Register.

Second test: control in fact through direct or indirect
influence

An individual will also be considered an ISC if the individual
has direct or indirect influence that, if exercised, would result
in control in fact of the corporation. The legislation provides
that, in making the “control in fact” determination,
“all relevant factors” should be taken
into consideration and that those “factors” need
not include
the existence (or non-existence) of a legally
enforceable right or ability to effect a change in the board of
directors or its powers (not even in the looser sense of having
influence over shareholders that have such a right or ability).

Despite the open-endedness of this definition, the legislation
includes an important and useful set of
exclusions. Control in fact, it states,
does not arise only by reason of an
individual’s influence that derives from an arm’s length
relationship involving any of the following kinds of agreements
affecting the “manner in which a business carried on by the
corporation is conducted”:

  • Franchising;

  • Licensing;

  • Leasing;

  • Distribution;

  • Supply; or

  • Management.

The express presumptive exclusion of these common commercial
arm’s-length arrangements will provide welcome certainty for
many businesses that fall into these categories.

Going Forward

As the OBCA amendments will take effect on January 1, 2023,
Ontario private corporations should take steps to assemble the
required information as soon as practicable.

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.



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