Nov 20th, 2023
Apr 6th, 2020
By Daniel Frajman
Quebec released its budget on March 10, 2020, and news on it is justifiably overtaken by the COVID-19 pandemic, as the health of all is paramount at this time and always. Nevertheless, for those whose practice touches on corporations or trusts anywhere in Canada, it is important to note that a statement in the recent Quebec budget on beneficial ownership disclosure underlines the kinds of rules that will have to be interpreted in the upcoming years in all Canadian jurisdictions in order to apply new rules on disclosing individuals who are the ultimate beneficial owners or controllers of private corporations and sometimes of trusts. This, and a comparison to some of the Federal rules on the issue, will be discussed below.
The various levels of government in Canada are beginning to take their cue from such organizations as the OECD, and the Financial Action Task Force, and we are therefore beginning to see ultimate beneficial ownership registers pop up in our various Canadian jurisdictions, with the goal of the registers being to promote transparency by looking through trusts and holding companies in corporate structures in order to establish the individuals with the ultimate significant control of the corporation at the bottom of the structure in question, with such individuals usually being those with at least 25% of the votes, or sometimes those with 25% of the outstanding shares or share value, or individuals with de facto control, of the corporation at the bottom of the structure. In fact, Canada’s finance ministers undertook in a December 2017 agreement to each establish a register along these lines in their particular jurisdiction, by mid-2019.
Some jurisdictions keep the register internal to the corporation, and available basically to the police in certain circumstances and to the tax department in the event of a suspected material tax offence or likely if a tax audit is occurring (ex, the federal register under the Canada Business Corporations Act (CBCA), and Manitoba’s and British Columbia’s registers). These jurisdictions usually point to such pubic ills as money laundering, tax evasion and terrorist financing as being matters they are trying to combat through these registers. In jurisdictions where in a addition there appears to also be an explicit desire to combat fraud generally among counterparties to transactions, the register tends to be a public one and searchable on the internet (ex., the UK, the EU and Quebec’s register currently scheduled to be in place in 2021 as announced in the recent Quebec budget). There is a debate as to whether such registers should be internal or public, with reduction of business red tape supporting internal registers, and the need for transparency supporting the public ones.
With this background, and having worked with the federal CBCA register for over a year now since that legislation was released, it is interesting to note that with regard to corporate beneficial transparency, there are some very new developments regarding trusts and beneficial ownership that are of interest:
Therefore, the Federal and the Quebec jurisdictions have differing views on whether beneficial ownership disclosure should be private to the company and disclosed to the police and the tax department (the Federal regime), or made public (the recently announced Quebec regime), and may have differing views on the extent of disclosure for trusts that have an element of control of a company (Quebec possibly having more transparency for such trusts than the Federal regime). These are issues that each province and territory will have to deal with as their own corporate beneficial ownership legislation is introduced and comes into force.
This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.