In recent years, the provincial and federal government have announced legislative and regulatory changes with the goal of combating money laundering, tax evasion and other financial crimes. Many of the legislative changes involve new rules aimed at increasing transparency by requiring additional disclosure about individuals that have a legal or beneficial interest in British Columbia real estate or private companies. Where property is owned through a trust, there can be considerable uncertainty about the extent of disclosure that is required. This article discusses the key BC and federal statutes that require trusts to disclose information about beneficiaries, settlors, and trustees, and some of the issues with the interpretation of these requirements. In particular, it reviews the transparency and disclosure rules applicable to trusts under British Columbia’s Business Corporations Act, Property Transfer Tax Act and Land Owner Transparency Act and also discusses the new reporting and disclosure rules that will soon be coming into force under the federal Income Tax Act.
The focus of this article is on the disclosure rules applicable to an express trust, which is often used to describe any trust that is not a bare trust (for example, the typical family trust, alter ego trust, joint partner trust). While disclosure is still required when property is held through a bare trust, determining the beneficial owner(s) of property held by a bare trustee is typically more straightforward and is therefore not discussed in this article.
Disclosure Required under Corporate Legislation
Private companies governed by British Columbia’s Business Corporations Act (the “BCA”) have been required to prepare and maintain a “transparency register” since October 1, 2020. The transparency register must include certain personal information about every “significant individual”, which in general terms, is someone who owns or indirectly controls 25% or more of the issued or voting shares of the company, or who otherwise directly or indirectly controls the company by having the power to appoint and remove the majority of the company’s directors. When determining if an individual owns 25% or more of the issued or voting shares of the company, it is necessary to consider both the “registered owner” of the shares and the “beneficial owner” of the shares.
Where shares are owned through a trust, it is not clear when a beneficiary of the trust should be considered a “beneficial owner” of the shares. The rules do confirm that if a person has an interest in the shares that is contingent on the death of another individual (for example, the remainder beneficiary of an alter ego trust who is only entitled to income and capital of the trust after the death of the primary beneficiary), they will not be considered a beneficial owner of the shares, but there is no definition of “beneficial owner” or other guidance on the meaning of this term in the legislation. The difficulty with the expression “beneficial owner” is that it does not have a precise legal meaning that can be uniformly applied. Whether someone is a “beneficial owner” of property held in a trust is inextricably linked to the specific terms of the trust and the rights granted to the beneficiary (such as whether the beneficiary’s interest is vested or subject to the discretion of the trustees, or is contingent on some future event). While there are court cases that provide more precise interpretations of the term “beneficial owner”, they deal with the meaning of the term in the context of a specific statute and specific facts and provide little guidance outside of those circumstances. Further, it is debatable whether a beneficiary can even be said to be a “beneficial owner” of trust assets. Many would argue that a beneficiary has a right against the trustee that can be used to enforce the terms of the trust, but they do not have a right to the trust property itself. 
On a BC government webpage explaining the transparency register requirements, a beneficial owner is described as “an individual who is legally entitled to receive benefits of property rights (e.g. shareholder rights) in equity even though legal title of the property belongs to another person (e.g. the trustee).” On the same page, there is an example provided to illustrate the concept of “beneficial owner”. In the example, shares of a company are held in trust by the spouse of the company’s founder, for the benefit of their two children, and the mere existence of the trust seems to lead to the conclusion that the children are beneficial owners of the shares. In a typical discretionary family trust, the trustees often have full discretion to determine if, when and in what proportion income and capital is to be distributed to the beneficiaries, and there may even be a power in the trust declaration to remove beneficiaries at a later date. If you are assessing the beneficial owners of property held in this type of trust, it may be difficult to conclude that the beneficiaries are “legally entitled” to receive any benefit from the trust.
The BC government is not the only jurisdiction requiring greater transparency of corporate share ownership. In 2019, the federal government announced changes to the Canada Business Corporations Act to require beneficial share ownership records. And many other provinces are moving forward with plans to amend their corporate statutes to require similar disclosure.
Disclosure Required under Real Estate Legislation
Property Transfer Tax Act
In 2018, a new regulation (the Information Collection Regulation) was enacted under BC’s Property Transfer Tax Act (the “PTTA”) and a new version of the property transfer tax return came into effect. Corporate purchasers are now required to disclose personal information about every “corporate interest holder”, which includes an individual who has “legal or beneficial ownership or control”, directly or indirectly, of shares of the purchaser corporation representing 25% or more of the voting rights or equity of the corporation. If the shares that meet this threshold are owned through a trust, an individual beneficiary of the trust would need to be disclosed if it can be said that they have “beneficial ownership” of the shares. If the purchaser is a trustee of a trust, the rules require that certain information be disclosed about each “beneficiary” of the trust.
Again, there is no definition of “beneficial ownership” or “beneficiary” in the legislation. There is also no exclusion provided for situations where an individual’s interest is contingent on the death of another individual which creates further uncertainty as to whether contingent beneficiaries are required to be disclosed. It is also not clear whether the term “beneficiary” is meant to capture the same individuals that have “beneficial ownership” of shares of a corporation, or if there is a distinction between these terms that could lead to different individuals being disclosed depending on whether property is owned directly by a trust or through a corporation owned by a trust. Presumably, the term “beneficiary” would capture a broader class of individuals because an individual can be named as a “beneficiary” of a trust, without having any interest or entitlement in a particular property that is owned by the trust (for example, because the property is held for the benefit of a different beneficiary).
Certain types of trusts are excluded from these rules, including charitable trusts and trusts where the trustee is the Public Guardian and Trustee.
Land Owner Transparency Act
BC’s Land Owner Transparency Act (the “LOTA”) came into force November 30, 2020, and requires disclosure of individuals that have an indirect interest in land (including through a trust) in a searchable, public database. In cases where land will be owned by a trust, the LOTA will require the trustees to file a transparency report when the application to register the interest in land is made at the Land Title Office, or when there is a later change in the “beneficial owner” of the property owned by the trust. In addition, if a trust is a pre-existing registered owner of an interest in land, the trustees will be required to file a transparency report during the initial transition period after the LOTA comes into force. In the transparency report, the trustees will have to disclose identification information for each trustee, beneficial owner, and settlor involved in the trust.
The term “beneficial owner” is defined in the LOTA as any individual that: (a) has a beneficial interest in respect of the interest in land that is not contingent on the death of another individual; (b) has the power to revoke the trust and receive the interest in land; or (c) is a “corporate interest holder” in respect of a corporation that has a beneficial interest in the land, or the power to revoke the trust and receive the interest in the land. While the definition does provide some guidance on when an individual will be considered a “beneficial owner”, there is still some uncertainty as to when an individual will have a “beneficial interest” in respect of property owned by a trust.
The term “settlor” also does not have a clear legal meaning. It is often used to refer to the person that transfers the initial property to the trustees in order to settle the trust. It is not clear if this term is also meant to capture individuals that contribute property to the trust after its settlement. There is a definition of the term “settlor” in the legislation but it provides no real guidance as it only specifies that a settlor does not include someone who is also a trustee of the trust, or beneficial owner in respect of the interest in land.
The type of trusts that are exempt under these rules is broader than under the property transfer tax rules discussed above. Trusts that are exempt from the rules include charitable trusts, testamentary trusts, alter ego trusts and joint spousal or common-law partner trusts.
Disclosure Required under Tax Legislation
Under the Income Tax Act (Canada) (the “ITA”), new trust disclosure and reporting rules were announced in 2018. These changes will apply to taxation years ending on or after December 30, 2021. Under the new rules, most trusts resident in Canada will be required to file a T3 return in each taxation year, even in cases where the trust has no income or gains to report for that year. There are limited exceptions for certain types of trusts, including trusts that are registered charities, mutual fund trusts and graduated rate estates.  In the T3 return, additional personal information will need to be disclosed about the trustees or other persons carrying out functions of a trustee, beneficiaries and settlor of the trust.
For the purposes of these rules, the term “settlor” is defined in subsection 17(5) of the ITA. The definition is broad and encompasses not only the person who initially settled the trust by transferring property to the trustee, but anyone not dealing at arm’s length with the trust who has transferred or loaned property to the trust.
The term “beneficiary” is defined in the ITA to include a person that is “beneficially interested” in the trust. The term “beneficially interested” is defined broadly in the ITA and includes a person with any right (immediate or future, absolute or contingent, conditional or unconditional, and whether or not such right is subject to the exercise of any discretion by any person) as a beneficiary under the trust to receive any income or capital directly or indirectly through one or more trusts or partnerships. It also includes a person who is not otherwise beneficially interested in the trust but who may become beneficially interested by the exercise of any discretion by any person, if the trust has ever acquired property from that person or certain other non-arm’s length and connected persons. While this definition provides some clarity on the type of interest required in order to be considered a “beneficiary” of a trust, it is extremely broad and in many cases may make it difficult or impossible to determine the full list of individuals that need to be disclosed. To further complicate matters, these definitions only apply for certain purposes under the ITA and it is not clear if these definitions are meant to apply for the purposes of the trust disclosure rules.
The disclosure requirements discussed in this article raise a number of issues when property or corporate interests are held through a trust. The terms “beneficial owner”, “beneficiary”, “beneficial interest” and “settlor” have no clear legal meaning and there appears to be no consistency in the use of these terms in the various statutes, creating considerable uncertainty about the extent of disclosure required.
This uncertainty puts those responsible for obtaining the required information in a difficult position. On the one hand, if the disclosure rules are interpreted too broadly, there may be more resistance from individuals who do not want their personal information disclosed unless absolutely necessary, and obtaining all of the required information may take considerable time and effort (especially where the individual has little ongoing involvement with the trust, such as a settlor who was only involved at the time of the initial settlement of the trust, or a beneficiary who is not even aware of their interest in the trust and who has never received any benefit from the trust). On the other hand, failing to properly disclose required information can lead to significant consequences as well. Under the ITA, penalties for purposeful or grossly negligent non-disclosure will be the greater of $2,500 or 5% of the fair market value of the trust’s assets. Under the LOTA, penalties for non-compliance can reach up to 15% of the assessed value of the property.
It is possible that more clarity will come as the transparency regime evolves and more guidance is provided by the government and the courts. In the meantime, for those with trusts that are inactive and no longer serving a purpose, it may make sense to consider winding up the trust as soon as possible. For others, it may be necessary to obtain legal advice to help navigate the rules and determine their disclosure obligations.
 The term “beneficially own” is defined in the BCA to include ownership through a trustee, personal or other legal representative, agent or other intermediary. This definition is only used in section 2(3) of the BCA for the purposes of determining when one corporation is affiliated with another corporation or is a subsidiary of another corporation.
 This issue is discussed in detail in the 2003 article by Catherine Brown titled “Symposium: Beneficial Ownership and the Income Tax Act”, Canadian Tax Journal, Volume 51, No. 1.
 Section 4 of the Information Collection Regulation.
 The term “corporate interest holder” is defined in section 3 of the LOTA and in general terms, is an individual that has certain interests or rights in 10% or more of the issued or voting shares of the corporation.
 Schedule 2 of the LOTA.
 Subsection 150(1.2) of the ITA.
 Subsection 108(1) of the ITA.
 Subsection 248(25) of the ITA.