Tax Insights: Ontario’s new business registry for filing annual returns and beneficial ownership register coming to Ontario

Issue 2022-08

In brief

Businesses operating in Ontario should ensure that they are aware of, and comply with, the following:

• effective October 19, 2021, Ontario corporations and non-Canadian extra-provincial corporations must register and file their annual returns using the Ontario Business Registry

• beginning January 1, 2023, privately held Ontario corporations will be required to create and maintain a register of individuals who hold significant control

• retroactive to October 25, 2021, non-competition provisions in Ontario employment agreements are prohibited and void (exceptions apply) 

In detail

Ontario corporations annual return filing

Background

On October 19, 2021, Ontario launched the Ontario Business Registry (OBR), which replaced the previous registry system that had existed for almost 30 years. The OBR is intended to provide instant fulfilment of search and registration requests and to operate 24 hours per day. 

Under the previous system, Ontario corporations were required to file with the Canada Revenue Agency (CRA) a Corporations Information Act Annual Return (CIA return) as part of their T2 Corporation Income Tax Return. For over 20 years, it was common for accountants and other tax return preparers to complete and file the CIA return on behalf of their clients. In anticipation of the OBR, the CRA announced that CIA returns could no longer be filed as of May 15, 2021. To address the delay in launching the OBR, a temporary filing exemption was provided to corporations whose annual returns were due from May 15, 2021 to October 18, 2021. 

Ontario Business Registry

Ontario businesses and not-for-profit corporations and non-Canadian corporations licensed to carry on business in Ontario must file a CIA return within six months of their taxation year-end. Corporations that file their CIA returns after the prescribed deadline may be fined a late filing fee and may be subject to cancellation.

Commencing October 19, 2021, corporations must file their CIA returns directly online using the OBR or through an authorized third-party service provider. To access the OBR, a corporation must have a company key (a unique identification number). Starting October 19, 2021, the OBR assigns a company key when businesses and not‑for‑profit corporations are incorporated or when non-Canadian corporations file an Initial Return for an Extra‑Provincial Corporation. Pre-existing corporations in Ontario must request a company key through the OBR, which will be mailed to their registered address.

Corporations may also use intermediaries, including lawyers, to file their CIA returns and otherwise transact on the OBR through authorized service providers. Lawyers are not required to have a company key to file documents on behalf of their clients.

Beneficial ownership register requirements for Ontario corporations

Starting January 1, 2023, privately held Ontario corporations will be required to create and maintain a register of individuals with “significant control” over these corporations. This new recordkeeping requirement has already been adopted by many other Canadian jurisdictions and is meant to address concerns over Canada’s vulnerability to financial crimes and tax evasion. 

Individuals with “significant control”

An individual has “significant control” over a corporation if the individual:

• is the registered or beneficial owner of, or has direct or indirect control or direction over, any number of shares that:
  • carry 25% or more of the voting rights attached to all of the corporation’s outstanding voting shares
  • is equal to 25% or more of all of the corporation’s outstanding shares measured by fair market value
• has any direct or indirect influence that, if exercised, would result in control in fact of the corporation, or
• is an individual to whom prescribed circumstances apply

The phrase “control in fact” is determined by considering all relevant factors in the circumstances; however, the legislation does not state those relevant factors. In addition, two or more individuals may be considered to be a single “individual” with significant control if:

• an ownership interest or right in respect of shares is held jointly by those individuals, or
• a right in respect of shares is exercised jointly or in concert by those individuals

Beneficial ownership register

The register must contain the following information about the individuals with significant control:

• name, date of birth and address
• jurisdiction of residence for tax purposes
• the date on which the individual became or ceased to be an individual with significant control
• a description of how the individual has significant control over the corporation, including any interests and rights in shares of the corporation, and
• a description of the steps taken to keep this information current each year

Compliance requirements and penalties for non-compliance

Corporations will be required to:

• update the register at least once during each financial year, and within 15 days of becoming aware of any change to the required information
• provide access to the register upon request by law enforcement, tax compliance and regulatory officials
• dispose of the personal information collected in the register within seven years of the day on which the affected individual ceased to have significant control over the corporation

Shareholders who receive a request for information by a corporation will be required to provide an accurate and complete reply “promptly and to the best of their knowledge.” 

Officers, directors and shareholders will be liable for failing to comply and may be subject to a fine of up to $200,000 and/or imprisonment of up to six months, if convicted. 

Ontario introduces legislation to prohibit non-compete clauses

The Ontario government recently passed a package of employee-friendly amendments to the province’s Employment Standards Act. The new measures include:

• restricting the use of non-compete agreements in employment contracts
• requiring, effective June 2, 2022, certain Ontario employers to have a written policy on their employees’ right to disconnect from work

Retroactive to October 25, 2021, employers in Ontario are prohibited from using employment-related non-compete agreements in its employment contracts. Employment contracts containing non-competition agreements will be void effective October 25, 2021, except for those relating to:

• situations involving the sale of a business or part of a business, and 
• employment agreements of executives (i.e. a CEO and other C-suite roles)

Employers in Ontario should:

• review their employment contract templates to ensure these clauses are removed for non-executive positions
• for existing employment agreements that contain non-competition provisions, consider amending these agreements for all employees in non-executive positions 

The takeaway

The requirement to file an Ontario CIA return can no longer be satisfied by filing with the CRA. 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. 

The introduction of the beneficial ownership register will require private corporations to gather and maintain a significant amount of information about their ultimate beneficial owners. Ontario private corporations should use the months ahead to review existing corporate records and procedures to prepare themselves and their shareholders for the new information reporting requirement. While similar register requirements have been implemented in other Canadian jurisdictions, there are subtle differences and care should be taken to ensure compliance with each jurisdiction’s requirements.