Understanding Beneficial Ownership Transparency: New ISC Reporting Requirements in Canada

Introduction

Recent amendments to the Canada Business Corporations Act (CBCA) have introduced significant changes to beneficial ownership transparency in Canada. As of January 22, 2024, private CBCA corporations must submit information on Individuals with Significant Control (ISCs) to Corporations Canada, with certain details being made publicly available through a free registry.

These reforms align Canada with global corporate transparency trends and aim to prevent financial crimes, including money laundering and tax evasion. Business owners and corporate directors must understand these changes to comply with reporting obligations and avoid severe penalties.

Background on Beneficial Ownership Transparency

Efforts to increase corporate transparency began in June 2019, when the CBCA was amended to require private corporations to maintain an internal register of ISCs. However, disclosure was limited to shareholders, creditors, law enforcement agencies, and Corporations Canada upon request.

The 2024 amendments take transparency a step further by requiring corporations to submit ISC details to Corporations Canada, making key information accessible to the public.

Who Qualifies as an Individual with Significant Control (ISC)?

An ISC is an individual who:

• Owns or controls a significant number of shares, directly or indirectly.
• Exercises direct or indirect influence over the corporation’s decisions.

A significant number of shares means:

• 25% or more of the fair market value of outstanding shares, or
• 25% or more of the voting rights attached to outstanding shares.

ISCs include individuals who own shares through holding companies, trusts, or other indirect structures.

Key Changes Effective January 2024

Starting January 22, 2024, private CBCA corporations must submit ISC information:

• With their annual return to Corporations Canada.
• Within 15 days of any changes in the ISC register.
• Upon incorporation of a new CBCA corporation.
• After an amalgamation or continuance into the federal jurisdiction.

Failure to meet these reporting obligations can result in significant penalties.

What ISC Information is Publicly Available?

Certain ISC details will be accessible to the public via Corporations Canada’s online registry:

• Name
• Address for service (if provided)
• Residential address (if no service address is listed)
• Date of significant control
• Description of control (e.g., percentage of ownership)

Some information will remain private to protect individuals’ security:

• Date of birth
• Citizenship
• Tax residency
• Residential address, if a service address is provided

The goal is to balance transparency with privacy while making beneficial ownership details available for law enforcement, regulatory bodies, and the public.

Penalties for Non-Compliance

Corporations that fail to comply with the new ISC reporting rules face severe consequences:

• Directors and officers authorizing non-compliance may face fines of up to $1,000,000 and/or imprisonment for up to five years.
• Corporations failing to report ISC information may be fined up to $100,000.
• Corporations Canada may refuse compliance certificates, which are required for certain legal transactions.
• Non-compliant corporations risk administrative dissolution.

Given these steep penalties, corporations must ensure accurate and timely reporting of ISC information.

How Does Canada Compare to Other Jurisdictions?

British Columbia: Starting in 2025, private corporations will be required to disclose significant control information under the Business Corporations Act (BCBCA).

Québec: Since March 2023, companies must file information on ultimate beneficiaries, accessible through the Registraire des entreprises du Québec.

International Comparisons: The United Kingdom and many European countries have had public beneficial ownership registries since 2016/2017. However, in November 2022, the European Court of Justice ruled that some EU countries must limit public access to protect individual privacy.

The Canadian approach attempts to strike a balance between transparency and privacy concerns.

What This Means for Business Owners

Business owners must regularly update ISC records and submit accurate information to Corporations Canada.

Certain shareholder details will be publicly accessible, so ISCs should be aware of their disclosure obligations.

Failure to comply could result in substantial fines or even dissolution of the corporation.

While other Canadian provinces have not yet introduced public ISC databases, this trend toward greater corporate transparency may soon expand nationwide.

Frequently Asked Questions (FAQs)

1. What is an ISC under the CBCA?

An ISC (Individual with Significant Control) is anyone who:

• Owns or controls 25% or more of a corporation’s shares or voting rights.
• Exercises significant influence over corporate decisions.

2. What ISC information will be publicly available?

Publicly accessible information includes:

• Name
• Address for service (or residential address if no service address is provided)
• Date of significant control
• Description of control

3. What are the penalties for failing to comply with ISC reporting?

• Directors or officers could face fines of up to $1,000,000 or five years in prison.
• Corporations may be fined up to $100,000.
• Non-compliant corporations risk administrative dissolution by Corporations Canada.

4. Are there any privacy protections for ISCs?

Yes. The following details will not be made public:

• Date of birth
• Citizenship
• Tax residency
• Residential address (if an alternate service address is provided)

5. Will other Canadian provinces introduce similar transparency rules?

Possibly. Québec and British Columbia have already introduced beneficial ownership transparency laws, and other provinces may follow suit to align with federal and international standards.

Conclusion

The new CBCA amendments represent a major shift toward corporate transparency in Canada. Private corporations must now submit ISC details to Corporations Canada, with key information publicly accessible.

Business owners should take proactive steps to ensure compliance, avoid penalties, and understand their public disclosure obligations.

For guidance on how these new regulations affect your corporation or to ensure your compliance with CBCA requirements, contact us today.