1. Virtual witnessing of Wills and POAs is now permanent.

Remote signing of wills and powers of attorney (“POAs”) was first introduced as a temporary measure during the original COVID-19 emergency order in 2020. The AAJA makes virtual signing a permanent option and tweaks some of the definitions from the original measures.

As of January 1, 2022, wills may be formally signed and witnessed virtually provided that (1) at least one person who acts as a witness is a lawyer or a paralegal, (2) the testator’s and witnesses’ signatures are made at the same time, and (3) the electronic method of communication used allows participants to see, hear and communicate with one another in real time[1]. It is however important to note that Ontario still requires wet signatures on wills (i.e. with a pen). Electronic signatures on wills have not been approved.

A complementary amendment to the SDA now permanently permits the same virtual witnessing for powers of attorney.[2]

2. Marriage no longer revokes an existing will.

As of January 1, 2022, the AAJA repeals subsection 15(a) and section 16 of the SLRA thereby changing the law so that if someone with an existing will marries, their existing will is not automatically revoked.[3]

3. Separated spouses lose entitlements and appointments.

The AAJA amends section 17 of the SLRA to provide that, if at the time of the testator’s death the testator was separated from his or her spouse, then any gifts to the separated spouse in the will of the testator will be revoked and the will of the testator will be construed as if the separated spouse predeceased the testator (subject to any contrary intentions in the will).[4] This will effectively extend the existing provision to treat separated spouses the same as divorced spouses under section 17 of the SLRA.

The AAJA also provides that the intestacy rules in the SLRA will no longer apply to separated spouses. This means that if a testator had no will and was separated from their spouse at the time of their death, the spousal entitlements provided for under the SLRA will no longer apply.[5]

The definition of ‘separated’ in the AAJA provides for a number of scenarios, but will likely most often apply when, before the testator’s death, the testator and their spouse lived separately for 3 years due to the breakdown of their marriage and in cases where parties have entered into a separation agreement.[6]

4. Improperly signed wills are now treated more flexibly.

Effective January 1, 2022, the Superior Court of Justice is now authorized, on application, to make an order validating a document or writing that was not properly executed in complete compliance with the formal requirements for the execution of wills if the Court is satisfied that the document or writing sets out the testamentary intentions of the deceased or the deceased’s intention to revoke, alter or revive their will.

This is a significant change as previously the court had no discretion in determining whether a  document purporting to be a ‘will’ satisfied the strict legislative requirements to constitute a valid will. Several provinces have already enacted similar legislation and the Ontario courts are likely to look to the decisions of the courts in those provinces when considering the application of this new power.

The AAJA expressly excludes electronically executed documents from the scope of this power.[7] This means that the new authority of the court to validate testamentary documents is not intended to allow the court to declare a document or writing valid if that document or writing bears an electronic signature. Wet signatures are still required on the documents that are submitted for validation.

These beneficial changes are important to note for married, separated and long-term common-law couples alike but proper estate planning advice is still necessary to be sure appropriate provisions have been made for individuals and their family members.  For more information on your estate planning needs please reach out to Lou Alexopoulos at lalexo@sotos.ca, 416.977.5024.

[1] Schedule 9, section 1(2) of the AAJA
[2] Schedule 8 of the AAJA
[3] Schedule 9, section 2 and 3 of the AAJA
[4] Schedule 9, section 4(1) and (2) of the AAJA
[5] Schedule 9. section 6 of the AAJA
[6] Schedule 9, section 4(2) of the AAJA
[7] Schedule 9, section 5 of the AAJA

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Such amendments, if enacted, would be effective January 1, 2023 and would introduce beneficial ownership information requirements as a means of preventing and better detecting the use of corporations for tax evasion, money laundering, or other illicit financial activities.

These proposed modifications to Ontario’s legislation come on the heels of similar changes to the Canada Business Corporations Act (the ‘CBCA’) on the federal level and British Columbia’s Business Corporations Act.

The amendments, if implemented, would require privately-held provincially-registered corporations to collect and maintain beneficial ownership information with respect to “individuals with significant control” (‘ISC’) that can be provided on request to regulatory authorities such as tax authorities, law enforcement, the Ontario Securities Commission, and other regulatory authorities as may be defined in the legislation. Corporations would not be required to file such information externally but would be required to update this information in their own records each fiscal year and within 15 days of any changes.

To what corporations will the new requirements apply?

Although it has not been explicitly stated, the likelihood is that the new requirements will apply only to privately-held corporations registered under the OBCA, and not to reporting issuers, since comparable information is collected for those entities by other means.

Who will constitute an Individual with Significant Control?

An ISC would be defined as an individual who:

• Owns, controls, or directs 25 per cent or more of the voting shares of the corporation or shares that are worth 25 per cent or more of the fair market value of all outstanding shares of the corporation; or
• Has direct or indirect influence over the corporation without owning at least 25 per cent of the shares.

As an anti-avoidance measure, a person would also be captured as an ISC if they own or control a significant number of shares jointly with other people. In addition, if a group of related persons collectively controls at least 25 per cent of the shares of a corporation, then each person would be an ISC. A related person would include an individual and their spouse, son or daughter, or any other relative living in the same house.

What information will need to be maintained by corporations?

Corporations would need to maintain the following information on each ISC:

• Name, date of birth and address;
• Jurisdiction of residence for tax purposes;
• Date of becoming or no longer being an ISC;
• A description of how the individual has significant control over the corporation, including a description of any interests and rights in shares of the corporation; and
• A description of the steps the corporation takes to keep this information current each year.

What are the non-compliance risks and who can access the beneficial ownership information?

The issues of what repercussions corporations that fail to comply with these new requirements would face and who can access such beneficial ownership information have yet to be addressed by the Ontario government as of the date of writing. However, we note that the penalties for non-compliance and authorization to access ISC information in the Ontario legislation could turn out to be similar to those imposed at the federal level. Under the federal requirements, non-compliance can result in a fine to the corporation of up to $5,000. Furthermore, a corporation’s directors, officers, or shareholders who knowingly authorize, permit, or acquiesce in the contravention of the new requirements or knowingly record or provide false or misleading information in relation to the ISC are personally liable for a fine of up to $200,000, imprisonment for a term of up to six months, or both. Under the federal requirements, currently law enforcement and the Canadian Revenue Agency may access the ISC records in the course of an investigation.

Next Steps

In anticipation that these proposals will become law in the near future, and from a practical point of view, corporate secretaries ought to prepare and circulate a questionnaire to each registered shareholder shown on the records of private corporations to identify individuals with significant control and such results should be kept in the minute books of the corporations or in other easily accessible data-bases.

At Sotos LLP, our team of experts has been advising businesses on their legislative obligations for decades. If you wish for more information regarding your Ontario private corporation’s new obligations under the proposed changes to the OBCA, contact Lou Alexopoulos at lalexo@sotos.ca,  416.977.5024.

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If you hold wealth in the form of private company shares, the estate planning strategy of multiple wills can potentially save your Estate a considerable sum in estate administration tax. This is done by reducing the value of your Estate requiring administration, or probate, by separating out the assets which can pass to beneficiaries without the requirement of probate and distributing them in one will, while the assets requiring probate are disposed of in a second will.

For anyone unfamiliar with the term, “probating” a will is the process by which the executor, or  Estate Trustee, applies to the Court to obtain authority to act in the Estate’s name. The Estate Trustee applies for what is called a “Certificate of Appointment of Estate Trustee with a Will.” This is required when the value of the Estate assets is over a minimum amount – generally over $25,000.00 – or in cases where the Estate is comprised of certain specific types of assets such as publicly traded securities and Canada Savings Bonds. Many banks, stockbrokers and other financial institutions require this Certificate from the Court before they will permit the Estate Trustee deal with the assets of the Estate.

The cost associated with obtaining this Certificate is the estate administration tax referenced above and it is based upon the gross value of an Estate. The tax is calculated as follows: $5 per thousand on the first $50,000 value of an Estate and $15 per thousand on the balance of the Estate’s value. By way of example:

• A modest estate of $150,000 would attract estate administration tax of $1,750;
• A larger estate of $250,000 would attract estate administration tax of $3,250; and
• A million dollar estate would attract estate administration tax in the amount of $14,500.

Bear in mind that there is no upper limit on this tax amount.

Effective estate planning can help avoid the attraction of at least part of this tax through the reduction of the value of the Estate requiring administration.  Since shares in private companies can generally be transferred without obtaining probate, it is advantageous to dispose of such assets through a separate will which will not be submitted for probate. In the absence of such an additional will, the entire gross value of your Estate would be included for the purposes of obtaining probate; thereby resulting in payment of a needlessly higher estate administration tax.

A brief example will illustrate the value of multiple wills in this context.

• A testator has left an Estate valued at $2,000,000 comprised of $50,000 in cash in a bank account and $1,950,000 in private company shares. In order to give the Estate Trustee access to the $50,000 bank account, the bank will require that the Estate be administered by obtaining a Certificate from the Court. As such, estate administration tax in the amount of $29,500 would be payable on the full $2-million value of the Estate before the Court hands over the desired Certificate of Appointment of Estate Trustee with a Will.
• As noted, an effective tax minimization strategy in this case would have been the execution of two Wills by the testator; one will for the assets which must pass through the Court, i.e., the bank account, and one will for those assets which need not pass through the Court, i.e., the private company shares.
• In this example, an application for a Certificate of Appointment of Estate Trustee with a Will would then have been made for the will dealing only with the $50,000.00 bank account; resulting in estate administration tax of only $250.00 payable by the Estate, a saving of $29,250 in estate administration tax!

If you wish more information on this and other tax saving measures, contact one of the Estate planning professionals at Sotos LLP.

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In the context of an estate freeze one of the steps is to have the parent, as the “freezor”, subscribe for common or growth shares in the operating corporation and then immediately gift those shares to his child together with a declaration that he is gifting the shares together with a further declaration that the shares are not to form part of the donee’s net family property.

This is precisely the fact situation that the Court of Appeal was presented with in the case of McNamee v. McNamee, a case involving the dissolution of a marriage and entitlement to shares which were gifted as part of an estate freeze undertaken by the father of one the spouses.

At the time of the transfer, the father prepared a declaration of gift, which stated that the shares were not to form a part of his son’s net family property and that they would be free from the control of the spouse. The father and his son then entered into a Unanimous Shareholders Agreement with respect to their shareholdings in the operating company.

One of the issues before the Court of Appeal was the fact that the son was not aware of the father’s declaration of gift nor that the gift was conditional on the shares not forming part of his net family property. The Court concluded that the son was the owner of the gifted shares but that they formed part of his net family property. The Court reasoned that a donee must know that the gift was conditional and that the donee must take steps to treat the gifted shares as being subject to the condition set out in the declaration of gift. That was not the case in McNamee, as the son had testified at trial that he had not read the documents nor was the condition communicated to him.

The important point to take from this case is that the recipient of a gift should be made aware of the conditions imposed on the gifted shares – the most important of which is to exclude them from the application of the equalization of net family property rules found in the Family Law Act – and that this acknowledgment be evidenced at the time the gift is made.

To ignore the decision in McNamee is to risk one of the essential purposes of an estate freeze.

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Considering the importance of the financial statements to a prospective franchisee, it is not surprising that Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 (the “Act”) defines the methods for preparing financial statements which are acceptable for the purposes of the disclosure document.

Any non-compliance with the disclosure requirements under the Act may permit the franchisee to rescind the franchise agreement and recover damages against the franchisor and against the principals of the franchisor, personally. As a franchisor, you can expect that the courts will not overlook the importance of the financial statements to the disclosure document and will likely award the remedies available to the franchisee under the Act if the financial statements are not prepared in conformity the Act.

What Financial Statements are Acceptable for the Disclosure Document

Unless the franchisor qualifies for the financial statement exemption in the Act, the Act requires the franchisor to include in the disclosure document either:

a) audited financial statements for the most recently completed fiscal year of the franchisor’s operations; or b) financial statements for the most recently completed fiscal year of the franchisor’s operations that are at least equivalent to the review and reporting standards to review engagements set out in the CICA Handbook.

Failure to provide the prescribed financial statements means noncompliance with the disclosure requirements of the Act.

Consequences of Non-Compliance with the Act

Certain statutory remedies are available to a franchisee if the disclosure requirements of the Act are not met. The Act gives the franchisee the right to rescind the franchise agreement if the contents of the disclosure document do not meet the standby requirements, but this rescission remedy must be exercised by the franchisee within 60 days after receiving the disclosure document.

The Act gives the franchisee the further right to rescind the franchise agreement if the franchisor did not provide a disclosure document, but this rescission remedy must be exercised by the franchisee within two years after entering into the franchise agreement.

Upon a rescission right being exercised, the franchisor will have to return the franchisee’s investment in the franchise and compensate the franchisee for any losses incurred in setting up and operating the franchise, all within 60 days after the effective date of rescission. Further, if the franchisee suffers a loss because of the franchisor’s failure to comply in any way with the Act’s disclosure requirements, the franchisee has a statutory right of action for damages against the franchisor.

Strict Compliance with Act

Recent Ontario jurisprudence demonstrates that the courts will strictly interpret the franchisor’s disclosure obligations under the Act in favour of franchisees.

The Ontario Court of Appeal has held that the franchisee’s statutory right of action for damages is in addition to the rescission right and concluded that franchisors need to provide disclosure documents that include all of the information required by the Act. As a result, should a franchisor fail to include either audited or review engagement financial statements in the disclosure document, it is open to the franchisee to argue that because the franchisor’s financial health is so fundamental to a prospective franchisee’s investment decision, what the franchisee received was not a “disclosure document” within the meaning of the Act, so that the franchisee may take advantage of the two-year rescission period.

Conclusion

A franchisor which does not provide or fails to complete the disclosure document in strict compliance with the Act, including financial statements prepared in accordance with the Act, runs the risk of having an unhappy or disappointed franchisee rescind the franchise agreement within two years after the grant of the franchise. The consequences are far more detrimental than the extra cost of including financial statements prepared in accordance with the Act.

The disclosure document is the cornerstone of the Act. We work closely with our clients and their financial advisors to ensure compliance with the Act.

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