Regulatory Impact Analysis Statement

(This statement is not part of the Regulations)

Title of Proposal:

Regulations amending the Canada Business Corporations Regulations, 2001

Table of Contents

• Description
• Possible Solutions
• Costs and Benefits
• Consultations
• Compliance and Enforcement
• Contact Person

Description

Amendments are proposed to Section 5 of the Canada Business Corporation Regulations, 2001 (the Regulations).

Section 5 of the Regulations currently stipulates that the annual return referred to in Section 263 of the Canada Business Corporations Act (CBCA), shall be sent to the Director within six months after the end of the corporation's taxation year, and shall set out the required information as of the date of the taxation year end. For purposes of these Regulations, the "end of the taxation year" means the taxation year end as defined in subsection 1104(1) of the Income Tax Regulations and is the equivalent of the financial year end.

Prior to January 1999, federal corporations were required to file their annual returns within 60 days after the anniversary date of their incorporation. In January 1999, Corporations Canada and the Canada Revenue Agency (CRA) implemented an initiative that allowed corporations to combine the filing of Corporation Canada's Annual return (AR) form with the filing of the Canada Revenue Agency corporation income tax return (T2). Since T2s are due within six months after a corporation's taxation year end, Corporations Canada changed the filing date for the annual returns to coincide with the filing date for T2s. However, the AR/T2 filing option created confusion and many other problems for corporations and Corporations Canada. Because this option was rarely used by corporations, it has been discontinued. Consequently, it is necessary to amend Section 5 of the Regulations to remove references to it.

Corporations Canada is also proposing to amend Section 5 to change the period for filing annual returns from the current "within six months after a corporation's taxation year-end" to "within 60 days after a corporation's anniversary date". In order to minimize the impact, a transition period is proposed for corporations having a taxation year-end between July 1, 2006 and December 31, 2006. For those corporations, the annual return must be sent within 60 days after the end of the corporation's taxation year to reduce the number of corporations that may be required to file two consecutive annual returns within a six-month period. After January 1, 2007, all corporations will be required to file their annual returns within 60 days after the corporation's anniversary date.

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Possible Solutions

An alternative to the amendment is the status quo. However, the status quo is not appropriate since it creates confusion for corporations, such as corporations having to file two annual returns in one year to where they effect a change in their financial year end. The taxation year end rules also affect the integrity of Corporations Canada's database, since the Income Tax Act does not allow CRA to provide Corporations Canada with the taxation year-end information. Reducing the period of filing from six months to 60 days will also ensure more up-to-date information from corporations. The option of changing the annual return filing rules for a period of 60 days after the anniversary date was chosen because past experience demonstrated that this option is clear and well understood by corporations, it reduced mistakes and double filing from corporations, and facilitates administrative efficiency.

In Canada, the period for filing annual returns in many provincial jurisdictions is often linked to the anniversary date of the corporation. As for the exceptions, one province requires all corporations to file on the same date, while another requires all corporations to file between September 15 and December 15. These options were rejected because they offered no advantage over the recommended approach and may create operational problems, such as backlogs during the filing period, thus affecting service.

Finally, the goal of the transition period proposed - having 60 days to file an annual return after the taxation year end when it is between July 1, 2006 and December 31, 2006 - is to reduce the number of corporations that would have to file two annual returns in a period of six months under the new rules. The transition also ensures that corporations will not have to file more than one annual return for each calendar year and will not be required to file an annual return for the current calendar year before they file for the previous year. For example, without the transition period, a corporation with an anniversary date on January 15 and a taxation year-end on December 31 would have until June 30, 2006 to file its 2005 annual return and until March 15, 2006 to file its 2006 annual return. As a result, this corporation would have to file its 2006 annual return before its 2005 annual return.

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Costs and benefits

The amendment to Section 5 of the Regulations should not result in additional costs for corporations during or after the transition period. Corporations will not be required to file more than one annual return for each calendar year. However, the amendments will impact some clients of Corporations Canada who will have to adjust their informatic and reminder system.

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Consultations

Corporations Canada has received many comments from clients in the past year stating that they are not satisfied with the current annual return filing period and rules, and that they would like these rules to be simplified.

In April 2005, Corporations Canada consulted 89 employees of 66 law firms and search houses during its annual information sessions in Montreal and Toronto on the proposed change. These respondents were all in favour of changing the annual return filing period to the proposed amendments.

Telephone consultations were conducted by a third party during the month of June 2005. These consultations consisted of calls to 306 randomly-selected respondents, located throughout the country, which were chosen from users of Corporations Canada's services. The accuracy of the results, calculated by the margin of error, is more or less 5.6 percent, at a confidence level of 95 percent. The results of the consultation show that employees and directors of corporations foresee the change to the annual return filing period to have a rather low impact on their corporations (61 percent claim there will be no impact or are unsure of the impact it might have). Negative impacts identified related to establishing internal procedures, while positive impact mostly referred to time saving and simplicity.

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Compliance and Enforcement

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Contact Person

Coleen Kirby
Corporations Canada
Industry Canada
10th Floor, Jean Edmonds Tower South
365 Laurier Avenue West
Ottawa, Ontario
K1A 0C8
Phone: (613) 941-5720
Fax:(613) 941-5781
E-mail: kirby.coleen@ic.gc.ca.

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