T1134 Information Return Relating to Controlled and Non-Controlled Foreign Affiliates

Canadian resident taxpayers who own shares of non-resident corporations are generally required to file a T1134 information return if the non-resident corporation is a “foreign affiliate” of the taxpayer. A one-time exemption from filing may be available for the year in which an individual immigrates to Canada.

New Form, Filing Deadline, and Disclosures

The Canada Revenue Agency has implemented a new version of form T1134 Information Return Relating to Controlled and Non-Controlled Foreign Affiliates. For taxation years beginning in 2021 or later, the new version of form T1134 must be used, and the T1134 information return is due 10 months after year-end. The new version of form T1134 has significantly expanded disclosure requirements, many of which relate to complex international tax concepts. Therefore, the amount of time required to gather the necessary information and to prepare the T1134 information return will increase significantly as compared to prior years. Where the taxpayer has received a dividend from a particular foreign affiliate during the tax year, it will be necessary to prepare several years of “surplus pool” calculations for each such foreign affiliate before the T1134 information return can be filed.

Foreign Affiliate, Dormant Foreign Affiliate, and Controlled Foreign Affiliate

Whether a particular non-resident corporation is a foreign affiliate of the taxpayer depends on the direct and indirect interests in the non-resident corporation of the taxpayer, and of persons related to the taxpayer. Where a particular foreign affiliate is considered to be:

• a dormant or inactive foreign affiliate, the amount of disclosure required decreases.
• a controlled foreign affiliate, the amount of disclosure required increases.

A foreign affiliate will be considered to be dormant or inactive where:

• the total cost amount to the taxpayer at any time in the year of the interest in that foreign affiliate was less than CAD $100,000,
• the foreign affiliate had gross receipts[1] of less than CAD $100,000 in the year, and
• at no time in the year did the foreign affiliate have assets with a total fair market value of more than CAD $1,000,000.

A foreign affiliate of the taxpayer can be a controlled foreign affiliate even if the taxpayer doesn’t actually control the foreign affiliate.

Penalties

Substantial penalties may be applied where the T1134 information return is filed late, or contains false statements or omissions. A shortened due date coupled with expanded disclosures and increased complexity means that it is important to be pro-active with your T1134 filing. Please contact your DMCL advisor to discuss the new filing requirements.

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[1] Gross receipts refers to any receipt received in the year (including proceeds from the disposition of property), and not just income amounts. This would include all non-revenue receipts, for example, loans.