Volume No. 19-01
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,
AND
- 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.
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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.
