Happy New Year! Like every other year, we all prepare to satisfy our tax obligations to the government. For all of us, that will come in the form of filing our income taxes. For corporate owners, however, not only are you obligated to file your annual returns but are now responsible for maintaining the records of individuals with significant control (“ISC”). To take this responsibility one step further, certain corporations, as of January 22, 2024, are required to provide certain details from their records of ISC to the federal government. In this edition of JL Law’s Newsletter, we will be explaining a corporation’s responsibility to file annual returns, maintain the records of ISC and filing certain information of ISC.
Annual Returns
Federal Corporations
Federal corporations are obligated to file their annual returns under Section 263 of the Canada Business Corporations Act (the “CBCA”). The deadline for filing a return is within 60 days of the corporation’s anniversary, which is either the date of incorporation, amalgamation, or continuance under the CBCA.
The date for filing is important as late filing will result in the corporation not being able to obtain a Certificate of Compliance, which may be required to perform certain corporate actions. Failing to file an annual return altogether may result in involuntary dissolution of your corporation.
Ontario Corporations
On the other hand, corporations incorporated under the Business Corporations Act (Ontario) (the “OBCA”) are governed under the Corporations Information Act (the “CIA”) and its General Regulations to file their annual returns within six months after the end of the corporation’s financial yearend. The financial year may be typically found in By-Law 1 of the corporation’s minute book.
The penalty for contravening the CIA may be a fine of not more than $25,000.00 for the corporation and $2,000.00 for every director or officer “who authorized, permitted or acquiesced” the contravention of the CIA. Another consequence may be the cancellation of your corporation for non-compliance.
Maintaining Records of ISC
Although most CBCA corporations have been required to maintain records of ISC, this requirement was only introduced to OBCA corporations on January 1, 2023. These records are to be updated at least once a year or within 15 days of learning of a change to an ISC’s relevant information.
Identifying whether one qualifies as an ISC may sometimes be tricky. The simplest method is to ascertain whether the person owns, controls, or directs at least 25% or more of the shares. These shares may be the total percentage of the number of voting shares (e.g., owning 25 of the outstanding 100 shares) or based on the fair market value of the total shares (e.g., owning 1 Common A share that is worth $25.00 and the outstanding 99 Common B shares are worth $75.00).
The other method of identifying an ISC is a little trickier. To qualify as an ISC, the individual does not necessarily need to own the above-noted number of shares or even any shares at all. One way is to collectively own enough shares. For CBCA corporations, an individual can jointly own, control, or direct 25% or more of shares to qualify as an ISC. OBCA corporations, on the other hand, an ISC is one who owns or controls a significant number of shares together with one or more individuals. The other way is for the individual to have “control in fact” over the corporation. This means that the individual has the power to influence the operations of the corporation directly or indirectly. These individuals may or may not own any shares of the corporation.
Submitting CBCA Corporation’s ISC
Bill C-42 received Royal Asset on November 2, 2023, which will require most private CBCA corporations to submit their ISC registers from January 22, 2024, onward. This information is to be provided annually with the corporation’s annual return, within 15 days of any change in the ISC register, upon incorporation of a CBCA corporation, and within 30 days of amalgamation or continuance. Further to the mandatory submittance, an amendment to Bill C-42 allows the Government of Canada to make certain information publicly available. Previously, only the Government of Canada, certain law enforcement and investigative bodies, and the corporation’s shareholders and creditors were able to access the information in the ISC register.
Conclusion
OBCA corporations may continue to maintain their minute books and submit annual returns as they have been. CBCA corporations must be aware of the new requirements to submit ISC register information when one of the above-noted obligations are triggered.
If you have any questions or require any assistance in submitting your annual returns, maintaining your corporation’s minute book, or complying with the new ISC register requirements, please feel free to contact us.