The Canada Revenue Agency (CRA) has various tools available to collect information on Canadian resident taxpayers' interests in offshore investments. Form T1134 - Information Return Relating to Controlled and Not-Controlled Foreign Affiliates (Form T1134) is one such tool: it is used to collect information on investments in foreign corporations held by Canadian residents. Unchanged since 2012, the CRA is making significant changes that are effective for taxation years that begin after 2020.
Background
Form T1134 is required to be filed to report an interest in a foreign affiliate (FA)/controlled foreign affiliate (CFA). An FA is a non-resident corporation where the Canadian taxpayer has at least a 1% direct equity interest and at least a 10% equity interest directly or indirectly when taking into account related parties of the Canadian taxpayer. A CFA is an FA that is controlled by the taxpayer. Form T1134 captures a variety of information regarding a taxpayer's offshore operations and investments in FAs/CFAs. Form T1134 must be filed by all Canadian resident taxpayers, which includes corporations, individuals, trusts, and partnerships where certain criteria are met.
Changes to Form T1134 filing deadlines
Coupled with the change to Form T1134, the filing deadline has also changed. Form T1134 currently has to be filed within 15 months following the end of the Canadian resident taxpayer's year-end. For taxation years beginning in 2020 or later, the filing is now 12 months after the taxpayer's year-end. For taxation years beginning in 2021 and later, the filing deadline will be reduced to 10 months after the taxpayer's year-end.
Key changes to revised Form T1134
The following is a summary of some of the key changes to Form T1134. Additional disclosure requirements to revised Form T1134
Relieving changes to the revised Form T1134
A number of changes were also introduced that will help to relieve the compliance burden of filing Form T1134 in some cases:
Penalties
The CRA has stated that penalties will be applicable not only for failure to file the form, but also for incorrect and incomplete information on the return. Given the additional amount of disclosures required under the revised Form T1134, taxpayers may find themselves subject to penalties if they can't accumulate all required information by the filing deadline. The CRA has indicated that a due diligence exception is available if the information is not available at the time the form is filed. However, taxpayers will have to prove they qualify for this exception based on their facts.
What taxpayers need to do
Overall, the changes to Form T1134 are significant. The additional disclosure and reporting requirements, combined with the change in filing deadlines, will make it challenging for taxpayers to ensure the revised Form T1134 is complete and filed on a timely basis. To ensure taxpayers are ready for the changes, they should do the following:
- Review their current organizational structure and understand if there will be changes to the structure and how they will impact the information required to be reported on the revised Form T1134.
- Ensure surplus calculations are submitted and kept up to date.
- Review the application of, the PLOI, upstream loans, and FAD rules to all investments in FAs/CFAs.
- Track the ACB in common and preferred shares of all FA/CFAs.
- Update the FACL/FAPL carryforward schedules for all FA/CFAs.
Contact one of our international tax BDO advisors to discuss how these changes will impact you and your business.
The information in this publication is current as of February 2, 2021.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.