Form T1134, Information Return Relating to Controlled and Non-Controlled Foreign Affiliates is a foreign reporting form which must be filed by all Canadian resident taxpayers (corporations, individuals and trusts), and partnerships for any year in which the taxpayer has an interest in a controlled or non-controlled foreign affiliate, at any time in the year.
The term ‘foreign affiliate’ means a non-resident corporation in which the taxpayer has at least a 1% direct ownership interest, and at least a 10% combined ownership interest when considering the interest of the taxpayer and each person related to the taxpayer. A “controlled” foreign affiliate is a foreign affiliate that is controlled by the taxpayer or would be controlled by the taxpayer if the taxpayer owned all of the shares of the foreign affiliate that are held by four or less Canadian resident shareholders and persons who deal at non-arm’s length with the taxpayer or the other Canadian resident shareholders. In stacked company structures, only the lowest tier Canadian subsidiary is required to file Form T1134.
If certain thresholds are not met, there is no filing requirement for Form T1134. In particular, exemptions apply if:
- The total cost to the reporting taxpayer of the interest in all foreign affiliates at any time in the year is less than $100,000,
- The foreign affiliate is deemed to be “dormant” – this is the case if the foreign affiliate had gross receipts of less than $25,000 in the year, and at no time in the year had assets with a total fair market value of more than $1 million.
The current filing deadline for Form T1134 is 15 months after the taxation year end of the reporting taxpayer. For example, the due date for the 2017 T1134 Form for an individual with a December 31 taxation year end will be due on March 31, 2019. However, as proposed in the 2018 Federal Budget, this deadline will be accelerated to allow the CRA to have the information sooner for their audit purposes. The new proposed deadline is 12 months after the taxation year end of the reporting taxpayer for taxation years beginning in 2020 and 10 months thereafter.
The purpose of the form is to require taxpayers to report various financial information regarding a foreign affiliate for CRA’s risk assessment purposes. For instance, Foreign Accrual Property Income or “FAPI” represents passive income earned by a controlled foreign affiliate, which is imputed and taxable in the hands of a Canadian resident shareholder as earned. Form T1134 provides a tracking mechanism for the CRA to match the information reported on the form to the income tax filings of such Canadian resident taxpayers.
It is important that Form T1134 be filed on time. The penalty for not filing this information return is $25 for each day late, to a maximum of $2,500 for each supplement that is required for a foreign affiliate.