Evidence of meeting #184 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was proposed.
A recording is available from Parliament.
Liberal
The Chair Liberal Wayne Easter
Okay. I think you know the committee has been looking at this whole issue fairly extensively for the last year and a report will be forthcoming, hopefully this week, on where we are on it.
Are there any questions?
Yes, Mr. Kmiec.
Conservative
Tom Kmiec Conservative Calgary Shepard, AB
Is there any mechanism in here that could be used to designate a spouse? I'm reading about individuals with significant control. It describes who they could be and then in proposed paragraph 2.1(1)(c) states, “an individual to whom prescribed circumstances apply.”
Are there any conditions under which the spouse of a beneficial holder could be named, under this proposed amendment?
Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada
The only requirement on the corporation is to seek out the information of the ultimate natural person controlling of the share, so if that spouse is, in fact, the ultimate controller of that share, yes. If that individual is, in fact, the controller of the share and the voting rights associated with it and any duties and responsibilities associated with it, that is the person who would be listed in the beneficial ownership registry.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Were you involved in the discussions with the provinces and territories, in terms of coming up with this agreement last year?
Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada
Yes.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Was there an appetite to take a look at an amount lower than 25%?
Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada
There was considerable discussion about what the threshold was. The rationale for the 25% arose from two functions. One is that it corresponds to the current obligation, under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, so we see that this as a belt-and-suspenders approach. Financial institutions are required to ask those entering into financial transactions with their organizations and entities to provide beneficial ownership information and then this would allow corporations to hold it in a particularly easy manner.
The other rationale is that we were trying to find the sweet spot between administrative burdens on corporations. For the Canada Business Corporations Act alone, there are more than 800,000 corporations in Canada. Ninety per cent of them are small and medium-sized enterprises and it should be noted that most of them have fairly simple corporate structures. The goal was, essentially, that we included control in fact, to get at the issue of being able to ensure that we were routing out the behaviour that's the problem, which is the use of the corporation to be able to evade tax or launder money.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
Thank you very much, first of all, for that very complete answer and also for the work that you did with the provinces and the territories.
Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada
It was my pleasure.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
In our committee travels, we had the opportunity to focus in and we had some very frank conversations with our American friends and our British friends over what they're taking a look at.
Especially on the U.K. side of things, there is more of a movement, not only to revisit the notion of the 25% threshold, but also to just revisit the entire notion of having a threshold and to start taking a look at what is—and I think you refer to it in proposed paragraphs 2.1(3)(a) and (b) where it talks not only about if it's 25%, but if they actually have effectively a significant control, so it's moving more towards that front.
Once again, did any of that discussion happen with the provinces and territories?
Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada
As we said, the discussion on control, in fact, was the escape valve clause. We wanted to ensure that there were potentially other individuals who held significant debt or had other mechanisms for leveraging control over the entity. That's why we felt comfortable with the 25%, and then this control in fact, which is jurisprudentially well established in terms of what control actually means.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
All right.
My second question...perhaps I didn't catch it. Is there a notion of capturing trusts and certain kinds of trusts under this?
Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada
Trusts are a beast of the provinces. Part of the goal of the discussion and why we're doing this in lockstep is to try to capture all the different functions of corporate entities. This will bind corporations incorporated under any of the provincial, territorial or federal statutes. We are the starters out of the block. We'll do the federal legislation, and they'll follow.
There are also discussions. My colleagues from finance might be able to speak more in terms of looking at the tax side to try to deal with trusts, where it's not quite as easy to get at from a statute perspective.
Liberal
Greg Fergus Liberal Hull—Aylmer, QC
When I do refer to trusts I'm not referring to all trusts. I'm referring to trusts that are related to having some beneficial ownership or controlling stake.
Perhaps Mr. Wright or Mr. Patterson would like to comment further.
Ian Wright Director, Financial Crimes Governance and Operations, Department of Finance
In budget 2018, it was announced that my colleagues in tax policy are looking at provisions to extend beneficial ownership or the requirement to report control of trusts as well.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
On the federally incorporated corporations, approximately what percentage of them are incorporating in Canada?
Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada
It's roughly around 8% or 9% of the total.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Okay. This legislation would pertain to those specific ones.
When would we expect follow on? I guess we're the first movers. The second movers would then be the provinces to enact similar legislation. Is that what the agreement encompasses?
Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada
The goal of the working group we struck with the federal, provincial and territorial corporate registries and tax authorities was for exactly that purpose. We agreed on the structure of the segments of the legislation so that it would be comparable across jurisdictions.
Then there was a commitment from all finance ministers of all the federal, provincial and territorial bodies, in December 2017, to fulfill the same legislative amendments to their respective corporate statutes by July 2019.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you for that answer.
Does this put us more in unison with our G20 partners?
Director General, Marketplace Framework Policy Branch, Innovation, Science and Economic Development Canada
This is a very important step in our commitments on the international front, including to FATF, and builds on work that's being done in other jurisdictions like the United Kingdom.