Canada's federal beneficial ownership transparency requirements are changing again. Beginning January 22, 2024, federal corporations will be required to provide certain information from their registers of individuals with significant control ("ISC Registers") to the federal government, which will then enter that information into what is to become a publicly accessible database. In this post, we discuss this development and a number of other recent changes to the CBCA ISC Register requirements.

ISC Information: The New Public Access Model

As discussed in our previous post, most CBCA corporations have been required since 2019 to maintain an ISC Register (also known as a beneficial ownership register or a transparency register), to be retained internally by the corporation. These registers record the names of a CBCA corporation's "individuals with significant control" ("ISCs"), as defined in the legislation, along with certain personal information and a description of the ISC's relationship to the corporation. The purpose is to record information relating to the beneficial ownership and control of CBCA corporations for enforcement purposes as well as for the use of shareholders and creditors in certain circumstances.

Initially, access to the registers was limited to the Government of Canada, various law enforcement and investigative bodies, and to the corporation's shareholders and creditors. The Government's intention, however, has always been to make information from the ISC Registers public. Under Bill C-42, which received Royal Assent on November 2, 2023, most private CBCA corporations will be required, from January 22, 2024 onward, to submit their ISC Register information to the Government of Canada when they file their annual returns and whenever changes in ISC Register information trigger ad hoc updating filings.

Additionally, under the Bill C-42 amendments, the Government of Canada will make some of the submitted information publicly available, including the following in respect of each ISC of the corporation:

  • Full legal name;
  • Address for service (or residential address, if no address for service is provided);
  • The date on which the individual became / ceased to be an ISC;
  • The rights, interests and/or influence that make the individual an ISC of the corporation; and
  • Any other prescribed information.

Other required ISC Register information, including an ISC's date of birth, country or countries of citizenship and tax jurisdiction, will not be publicly disclosed, unless prescribed by regulation in the future. The Government has also stated that it will make the public register system available to the provinces with the goal of integrating provincially and federally incorporated corporations in a single register system. Québec already has a public registry system and British Columbia has announced that it intends to launch its own register in 2025.

While the submitted ISC information that is publicly accessible will be limited, note that Corporations Canada, tax authorities, law enforcement and other prescribed investigative bodies will have access to all ISC information submitted to the Government of Canada.

While it is not clear whether the infrastructure allowing public access to ISC information will be up and running by January 22, 2024, the obligation to start submitting the required ISC Register information to Corporations Canada will apply as of that date.

As of January 22, 2024, ISC Register information filings are required at the following times:

  • Annually, together with the corporation's annual return filing;
  • Within 15 days of any change in a corporation's ISC Register information;
  • Upon incorporation under the CBCA; and
  • Within 30 days of the date of the certificate of amalgamation or continuance, as applicable, under the CBCA.

Note that the annual ISC disclosure will comprise part of an updated federal annual return which can only be filed after the anniversary of the corporation's incorporation date. Accordingly, for many existing CBCA corporations, their first ISC information submission to Corporations Canada will be as part of their next (2024) annual return filing (subject to a change in their existing ISC Register that occurs after January 22, 2024 but before their annual return filing window opens, which would trigger an earlier filing obligation).

Other Changes

The shift to public access is just one of a number of changes announced in 2023 impacting the CBCA corporate transparency regime. As described in detail in our earlier blog post, Bill C-42 mandates:

  • New disclosure requirements with respect to an ISC's citizenship and residential address information in the CBCA ISC Register;
  • Enhanced investigatory powers for law enforcement and tax authorities, including amendments to the Income Tax Act to permit access to tax records of corporations and their significant (at least 10%) shareholders for the purpose of verifying register data; and
  • Whistleblower protections.

Three further changes were effected through an amendment to the Canada Business Corporations Act Regulations, 2001:

  • An exemption for wholly-owned subsidiaries of most public companies from the requirement to maintain an ISC Register (this also applies to wholly-owned subsidiaries of Crown corporations);
  • A more precise description of the "reasonable steps" that must be taken to identify a corporation's ISCs, including sending a request for information at least once a year to existing ISCs, all shareholders, and any other person that the corporation has reasonable grounds to believe may have relevant knowledge with respect to an ISC; and
  • More precise guidance about situations in which a corporation has determined that it has no ISCs or no ISCs can be identified.

An additional change: increased penalties

At a late stage of Parliament's consideration of Bill C-42, the maximum fine for a corporation in contravention of the requirements relating to the submission of information to the Director was increased from $5,000 to $100,000. Individual liability also increased under Bill C-42: penalties for directors, officers and shareholders were increased from the previous 6 months' imprisonment and/or fines up to $200,000, to now up to 5 years' imprisonment and/or fines as high as $1 million.

Other consequences of a failure to make required disclosures

Due to the manner in which the ISC information must be submitted to Corporations Canada once the requirement is in force, a corporation will not be able to file its annual returns without completing the required ISC disclosure portions of the filing. In addition, failure to comply with these new filing requirements may mean that a CBCA corporation cannot obtain a certificate of compliance or certificate of status. Further, and as mentioned in our previous blog post, the Director may dissolve a corporation in default for more than one year, or where a corporation fails to submit the required ISC information within 30 days of an amalgamation or continuance under the CBCA.

Corporations Canada guidance

Corporations Canada has launched a web page that provides information to help CBCA corporations understand their ISC Register obligations. This includes a sample template ISC Register and guidance with respect to the "control in fact" concept.

Selected Issues

Our previous blog post reviews the amendments in detail. In this post, we highlight several issues of interest to those who may be working on their ISC Register analysis and disclosure.

Control in fact

As noted above, Corporations Canada has issued Control in Fact Guidance which indicates the factors that would need to be considered to determine if an individual is an ISC on the basis of exercising control over the CBCA corporation, including:

  • how much control the individual has to direct the activities of the corporation;
  • provisions within the articles of incorporation, rights attached to the individual's shares or securities, shareholders agreement or other agreement that give the individual the right to exercise significant influence or control in the corporation;
  • whether the individual has the right to veto decisions related to the corporation's business management (for example: adopting/amending the business plan, securing additional loans from lenders, appointing the majority of directors);
  • whether the individual has sufficient influence to control a family member who is a shareholder, officer, creditor or supplier of the corporation;
  • whether the individual's relationships with the corporation and its management give the individual the capacity to have significant influence or control; and
  • whether the corporation is economically dependent on the individual because they are its main or sole supplier/customer.

Note that the Bill C-42 amendments insert a provision into the legislation (s. 261(1)(a.2)) granting the Governor in Council the regulatory authority to define "control in fact", "direct influence" and "indirect influence" as those terms relate to the transparency register requirements. Whether "control in fact" will be defined by regulation, and whether that definition will be based on the Corporations Canada Guidance, remains to be seen.

Keeping ISC residential addresses out of the public register

Those responsible for ISC information filings should be aware that the residential addresses of ISCs must now be provided to the Director. In order to ensure that those addresses do not eventually appear on the public register, an alternative "address for service" will need to be provided. There is no requirement that this be an address in Canada. If an address for service is not provided, then the ISC's residential address will appear on the public register by default.

ISCs who are citizens of more than one country

The amendments add "citizenship" to the information that must be collected about each ISC. While the legislation does not address dual citizenship, Corporations Canada appears to be taking the position that all citizenships must be disclosed (see their template ISC Register).

Disclosure when no ISCs are found

In certain situations, a corporation may fail to identify any ISCs. This is typically either because no individual meets the applicable tests or because of the corporation's inability to obtain information needed to identify its ISCs. In either case, the corporation must still maintain an ISC Register which must include a statement that no ISCs have been found, along with a summary of the steps taken by the corporation to identify its ISCs.

Disclosure requirement for exempt corporations

In cases where a corporation is exempt from the requirement to maintain an ISC Register (e.g. as a public company or a wholly-owned subsidiary thereof), corporations are not required to maintain an ISC Register with their corporate records, but are required to disclose this fact in the applicable Government filings. This information will likely appear in the public registry.

Exceptions and exemptions from the public register

The CBCA, as amended by Bill C-42, will allow for limited exceptions and exemptions to the requirement that ISCs be included in the public register of their corporation. It is important to remember that these exceptions and exemptions do not negate the requirement to include an ISC – including an ISC who is a minor – in the corporation's ISC Register or to submit that individual's information to Corporations Canada.

Non-discretionary exceptions apply to certain classes of person, with no need for an application:

  • Minors – individuals who are less than 18 years of age; and
  • Individuals to whom prescribed circumstances apply (none prescribed as at the date of this post).

Corporations Canada has not yet commented on what the process will be for ensuring the omission of minors (and others to whom prescribed circumstances may apply in future) from the ISC information publicly available online. In the case of a minor, however, we expect that submission of the ISC's date of birth will determine (presumably automatically) whether the ISC will appear in the public database.

In contrast to exceptions, exemptions are granted to specific pieces of information about specific ISCs, on application, where the Director:

  • Reasonably believes that publicizing the information "presents or would present a serious threat to the safety of the individual";
  • Is satisfied that the ISC is incapable (i.e., is found, under the laws of a province, to be unable, other than by reason of minority, to manage their property or is declared to be incapable by any court in a jurisdiction outside Canada);
  • Is satisfied that the Conflict of Interest Act (or equivalent provincial legislation) requires that the information remain confidential; or
  • Is satisfied that prescribed circumstances apply to the individual.

The Director's discretion to grant (or refuse) exemptions on any of the above grounds does not appear to be limited to the consideration of a specific set of factors or objectives. On December 18, 2023, the Government of Canada released Guidance on applying for discretionary exemptions, including regarding the recommended timing for exemption applications, the review process and necessary summary, arguments and supporting documents for the application. The Guidance states, for example, that an application for an exemption on grounds of personal safety should contain a description of the serious threat, documentation supporting its existence (e.g. a police report) and arguments demonstrating that making the ISC Register information public would seriously threaten the ISC's personal safety. Note that Corporations Canada has indicated that it is unable to review and process exemption applications until Bill C‑42 comes into force on January 22, 2024.

Shareholder and creditor access

Bill C-42 will repeal the right of shareholders and creditors to request access the ISC Register maintained by the corporation as of January 22, 2024. Like all members of the public, however, shareholders and creditors will have access to the ISC information included in the public database.

Going Forward

While CBCA corporations are only required to submit this new ISC disclosure in respect of incorporations, amalgamations and continuances federally on and after January 22, 2024 and in respect of 2024 annual return filings submitted on or after that same date, they should take the opportunity to review their ISC Registers to ensure that they are up to date. ISCs should ensure that an address for service is provided if they would prefer their residential address to remain private.

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.