Jan 19, 2022
As we advised in Tax Tip 20-04 , significant additional disclosure and filing requirements for trusts were announced in the 2018 Federal Budget and are scheduled to apply for trust’s 2021 and subsequent tax years.
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 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.
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The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.