Confirmation of the New “Significant Control” Disclosure Obligations and New Annual Return Filling Process

Key Takeaways

  1. “Individuals with Significant Control” Must Be Disclosed – Starting January 1, 2023, privately-held Ontario corporations will be required to create and maintain a register of “individuals with significant control” (ISCs) over those corporations. Ontario private corporations should begin to review existing corporate records and procedures to prepare themselves and their shareholders for the new information reporting requirement.
  2. Annual Returns Must Be Filed with the Ontario Business Registry (OBR) – Effective October 19, 2021, Ontario Corporations must file their Annual Returns using the Ontario Business Registry. They can no longer file through the Canadian Revenue Agency as part of their T2 Corporation Income Tax Return. Affected corporations should ensure they have their company key to file their Ontario CIA return directly through the OBR or arrange for an intermediary who can file without a company key.

Disclosure Update

On January 1, 2023, amendments to the Ontario Business Corporations Act (OBCA) addressing continuing disclosure requirements for privately-held Ontario corporations will come into effect. From that date forward, Ontario corporations will be required to create and maintain a register of ISCs. Although new to Ontario, similar recordkeeping requirements have previously been adopted federally and in many other Canadian jurisdictions to address tax evasion and financial crime concerns.

Who is an Individual with Significant Control?

A person will be considered an ISC requiring disclosure if the person:

  • is the registered or beneficial owner of, or has direct or indirect control or direction over, a “significant number of shares”.
  • has any direct or indirect influence that, if exercised, would result in “control in fact” of the corporation.
  • is an individual to whom prescribed circumstances apply.

A “significant number of shares” is defined as owning, controlling, or directing 25% or more of the voting rights attached to the corporation’s outstanding voting shares or 25% or more of all of the corporation’s outstanding shares based on the fair market value of the shares.

The phrase “control in fact” is determined by considering all relevant factors in the circumstances; however, the legislation does not state those relevant factors.

Two or more individuals may be connected through their interest in the corporation so as to be considered to be a single ISC, requiring the details of both to be included on the register. This is because an individual meets the definition of ISC if they own or control a significant number of shares with one or more individuals. For example, an individual may individually own less than 25% of a corporation’s shares, but has an agreement with other shareholders to vote o the shares the same way.  If this group of individuals collectively owns 25% or more of a corporation’s shares, each member of the group is considered an ISC and needs to be recorded in the register.

What Must be Disclosed in the Register?

There is no proscribed form for the register. It can be created as a logbook, database, or spreadsheet. For each ISC, the register of ISCs must include;

  • name,
  • date of birth,
  • address,
  • country (or countries) where the ISC is considered a resident for tax purposes,
  • the date when control started (for example, when the ISC purchased 25% or more of the corporation’s shares),
  • the date when control ended,
  • a description of how the ISC has significant control (for example, a description of their interests and rights in respect of shares of the corporation),
  • a description of each step taken to identify all ISCs.

New information is required to be recorded in the register within 15 days of the corporation becoming aware of it. This register should be kept with the corporation’s minute books at the registered office or at another place in Ontario designated by the directors.

The corporation, officers, directors, and shareholders could all be found guilty of offences for failure to uphold their new disclosure obligations. Corporations that fail to uphold their record-keeping and disclosure requirements in regard to ISCs are guilty of an offence and could be liable to multiple fines of $5,000. Directors and Officers who knowingly authorize, permit or acquiesce in the contravention of the corporation’s disclosure requirements, or in the recording or provision of false or misleading information are guilty of an offence and could be liable for fines of up to $200,000 or imprisonment up to 6 months, or both. Shareholders who fail to meet their disclosure obligations may likewise be found guilty of an offence and could be liable for similar fines.

Annual Returns Update

Filing Annual Returns with the OBR

On October 19, 2021, Ontario launched the OBR. The OBR is intended to provide instant, 24-hour fulfillment of search and registration requests.

This is a major change from the previous registry system in which, for over 20 years, Ontario corporations were required to file a Corporations Information Act Annual Return (CIA return) with the Canada Revenue Agency (CRA). Accountants would routinely complete and file the CIA returns with the CRA on behalf of their clients – but this is no longer possible under the new system.  Commencing October 19, 2021, corporations must file their CIA returns directly online using the OBR or through an authorized third-party service provider (they can no longer be filed through the CRA).

To access the OBR, corporations must have a company key. For new corporations, a company key is automatically assigned through the OBR when businesses and not-for-profit corporations are incorporated or when non-Canadian corporations file an Initial Return for an Extra-Provincial Corporation. For pre-existing corporations in Ontario, a company key must be requested through the OBR, which will be mailed to the corporation’s registered address.

Note that corporations may still use intermediaries, such as lawyers and authorized service providers, to file their CIA returns and otherwise transact on the OBR. Law firms, through authorized service providers, are able to file documents on the OBR without a company key. If you do not have a company key and do not have much time to wait for one to come in the mail, you may need to request your law firm to submit the required documents on the OBR for you.