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Transparency in Tax

Transparency in Tax

This article is taken from our quarterly bulletin, Canadian Overview, published by Canadian member-firms of Moore North America. The articles in our bulletin are a part of our mission to become the ultimate ally in your success by keeping you informed about current events.

In the words of the OECD: “Tax transparency is about putting an end to bank secrecy and tax evasion through global tax co-operation”.  All us accounting geeks out there know that the CPA profession has publicly stated that it supports transparency of the beneficial ownership of corporations to create a national framework for whistleblowing and the sharing of information.

We have seen movement on this front in the past, starting with the Canada Business Corporations Act (CBCA).  On December 13, 2018, Bill C-86 received Royal Assent and amended the CBCA to impose additional disclosure requirements: commencing June 13, 2019, all corporations incorporated under the CBCA are required to identify all of their beneficial owners, which include:
  1. Registered or beneficial shareholders, or individuals with direct or indirect control or direction of 25% or more of the outstanding or voting shares;
  2. An individual with direct or indirect influence that, if exercised, would result in factual control of the corporation; or
  3. An individual to whom prescribed circumstances apply.  Such circumstances are set out in regulations and beyond the scope of this article.
The following information is required to be kept in a separate corporate register in relation to individuals who meet the criteria of having ‘significant control’:
  1. their name, date of birth and latest known address;
  2. their jurisdiction of residence for tax purposes;
  3. the date on which the individuals became or ceased to be individuals with significant control;\
  4. a description of how the individuals qualify as individuals with significant control, including their right, title and interest in and to shares of the corporation;
  5. other prescribed information; and
  6. steps taken by the corporation to identify all individuals with significant control and to ensure that information in the new register is accurate, complete and up-to-date.
Increasing transparency measures extend beyond corporations as well: the CRA has long made their concerns known that Trusts were and are being used to facilitate aggressive tax planning, tax evasion and money laundering.  In order “to improve the collection of beneficial ownership information with respect to trusts and to help the Canada Revenue Agency (the “CRA”) assess the tax liability for trusts and its beneficiaries”, the CRA has introduced draft legislation with new reporting rules for Trusts effective for year ends on or after December 31, 2021. Under this new legislation, the settlors, trustees, beneficiaries, and any person who has the ability to exert influence over trustee decisions are required to be disclosed along with their address, date of birth, jurisdiction of residence, and their taxpayer number.

The 2021 Federal Budget proposes to provide $2.1 million over two years to Innovation, Science and Economic Development Canada to support the implementation of a publicly accessible corporate beneficial ownership registry by 2025.  The initial use of this registry will be for law enforcement, tax and other authorities to access accurate and up-to-date data on individuals who own and control corporations, and to catch those who attempt to launder money, evade taxes or commit other financial crimes.  In addition to these federal measures, provincial changes will almost certainly follow and have already been enacted in some provinces, such as British Columbia’s new Land Owner Transparency Act.

No one disputes that changes to fight tax evasion and money laundering are necessary to ensure the integrity of our tax system, but at what cost?  At what point does transparency encroach on other values, most notably privacy?  I believe this philosophical debate should be at the forefront as the push for increased transparency continues.

Written by Brad Berry from Mowbrey Gil. This document was written for our quarterly bulletin, Canadian Overview, published by Canadian member-firms of Moore North America.