Questions and answers about Form T1134

Do you have to file a return?

Does Form T1134 have to be filed for a foreign affiliate in each of the following situations?

  • the foreign affiliate does not have a tax year ending in the reporting taxpayer's tax year
  • the foreign affiliate has been sold before its tax year-end
  • the foreign affiliate is acquired or formed in the year and has not had a tax year end in the reporting taxpayer's tax year
  • the foreign affiliate stops being a controlled foreign affiliate before the end of the reporting taxpayer's tax year

To ensure an accurate record of the history of the foreign affiliate and transparency of offshore structures, filing is required in all of the above situations.

The legislative requirement is that Form T1134 must be filed if the non-resident corporation or trust is either a foreign affiliate or a controlled foreign affiliate at any time during the reporting taxpayer's tax year.

It is recognized that, in certain situations, the amount of information to be filed will be minimal. For instance, this is the case if the corporation or trust stops being a controlled foreign affiliate before the end of the reporting taxpayer's tax year. Another example is if the foreign affiliate hasn't prepared financial statements because the reporting taxpayer’s year end is before the foreign affiliate’s year end.

If the required information isn't available, the reporting taxpayer must complete the disclosure section of the form to comply with the requirements of the due diligence exception.

Tracking Interests

If a reporting entity holds a property that is a tracking interest (as defined in subsection 95(8)), how are they to report this on Form T1134?

Where the reporting entity is deemed to own shares of a separate corporation that is a controlled foreign affiliate because of subsection 95(11) of the Act, the reporting entity is required to file one T1134 Supplement in respect of each such separate corporation. On each T1134 Supplement filed, specify the name of the tracking class you are reporting on – in addition to the name of the actual affiliate – in Part II – Section 2 of the 2012/2017 version or Section 1 of the 2021 version – Foreign Affiliate Information – A. Identification of foreign affiliate – "Name" portion of the T1134 Supplement.

For each separate corporation so determined, the reporting entity must also provide a separate set of unconsolidated financial statements that reflects the tracked property and activities as described in that provision, as well as the income, loss or gains in respect of such property and activities. If a reporting entity directly or indirectly holds shares in more than one tracking class issued by the same actual affiliate, it is required to provide separate unconsolidated financial statements for each deemed separate corporation as determined by subsection 95(11). A separate T1134 Supplement must also be filed in respect of the actual affiliate, along with a set of unconsolidated financial statements in respect of this legal entity.

In completing the T1134 Supplement in respect of a separate corporation, you must provide information relevant to the determination of the amounts, if any, to be included under subsection 91(1) in respect of the separate corporation. This would typically require completing the following sections of the T1134 Supplement in respect of the separate corporation:

T1134 version comparison
2012/2017 version of T1134 2021 version of T1134
Part II – Foreign affiliate information Part II – Foreign affiliate information
Section 1 – Reporting entity information -
Section 2 – Foreign affiliate information Section 1 – Foreign affiliate information
  1. Identification of foreign affiliate
  2. Capital stock of foreign affiliate
  1. Identification of foreign affiliate
  2. Capital stock of foreign affiliate
Section 3 – Financial information of the foreign affiliate Section 2 – Financial information of the foreign affiliate
Part III – all questions Part III – all questions

Information not relevant to the determination of amounts required to be included under subsection 91(1) in respect of the separate corporation need not be included on the T1134 Supplement in respect of the separate corporation. Instead, you must provide that information, as determined at the level of the actual affiliate, on the T1134 Supplement for the actual affiliate.

Where the foreign affiliate is deemed to be a controlled foreign affiliate because of subsection 95(12) of the Act, the reporting entity is required to file one T1134 Supplement in respect of the affiliate on the basis that it is a controlled foreign affiliate.

If a reporting entity holds a property that is a tracking interest (as defined in subsection 95(8)), how does the application of administrative relief for "Dormant Affiliates" apply to the tracking interest in respect of a foreign affiliate?

For purposes of determining whether a foreign affiliate meets the criteria to be considered as "dormant" in a T1134 filing context, each one of the three (3) conditions set out in the instructions to Form T1134 are to be applied at the legal entity level. Where a reporting entity is deemed to own shares in a separate corporation that is a controlled foreign affiliate because of subsection 95(11), the conditions are to be applied to the actual affiliate – that is, instead of being applied to each such separate corporation resulting from the application of subsection 95(11). For clarity, in the event that a reporting entity directly or indirectly holds shares in more than one (1) tracking class (as defined in subsection 95(11)), the thresholds pertaining to total gross receipts and total fair market value of assets are to be applied at the actual affiliate level.

Organizational structure (Part I – Section 3)

What is the definition of "related person" as used in Part I, Section 3 and in Part II, Section 2.B. of the 2012 / 2017 version or Section 1.B. of the 2021 version (capital stock of foreign affiliate) of Form T1134?

"Related person" is defined under subsection 251(2) of the Income Tax Act.

At what point during the year should the organizational structure filed with Form T1134 be reported? What disclosure, if any, is required for changes in the organizational structure during the reporting taxpayer's tax year?

The organizational structure must be reported in Part I, Section 3 as it is at the reporting taxpayer's year-end. If you are providing this information for taxation years or fiscal periods beginning before 2021, where the table included in the Summary has insufficient space, attach a separate page with a continuation of the information. Additional information can also be reported on a separate page, for example: entities that do not exist on the organizational structure, such as the acquisition and disposal of an affiliate in the same year.

For taxation years or fiscal periods beginning after 2020, you have the option of providing the information required in Part I Section 3.C. of the 2021 version of the form in a pictorial format, submitted electronically with the return. If you choose to complete the tables in Part I Section 3.C., the same instructions regarding insufficient space and means to provide additional information as described above continue to apply.

When reporting on the organizational structure in Part I, Section 3, the equity percentage is defined in subsection 95(4) as including direct and indirect share ownership percentages. In the case of a tiered corporate structure, this could result in significant repetitive reporting. Is there any administrative relief for this?

For tax years or fiscal periods that begin after 2020, there is an option to electronically submit a pictorial of the organizational chart which will significantly reduce the filing burden if you are reporting on a tiered structure of foreign affiliates in the T1134 Summary, Part I, Section 3, C. Organizational Chart, Tables i) through iv).

When reporting on the organizational structure in Part I, Section 3 of the 2012/2017 version the CRA will accept information limited only to each foreign affiliate of the reporting entity that has a direct equity percentage in any other foreign affiliate of the reporting entity. If the foreign affiliate of the reporting entity does not have a direct equity percentage in another foreign affiliate of the reporting entity, but does have an equity percentage, you are not required to provide information regarding this situation in Part I, Section 3.B. of the 2012/2017 version of the form. For tax years or fiscal periods that begin after 2020, this administrative relief will continue to apply if you choose to fill out Part I, Section 3.C. of the 2021 version of the form instead of providing the organizational chart in pictorial format. When completing these sections of the form (i.e., Part I Section 3.B. of the 2012/2017 version or Part I Section 3.C. table (ii) of the 2021 version), list the name and country code of the country of residence of each foreign affiliate of the reporting entity that has a direct equity percentage in any other foreign affiliate of the reporting entity. Include the foreign affiliate's equity percentage and direct equity percentage in the other foreign affiliate.

Capital stock of foreign affiliate (Part II – Section 2.B. of the 2012/2017 version)

If the share capital was subscribed in a foreign currency by the parent company and if the investment is accounted for in the financial statements in Canadian dollars and is re-valued each year in the financial statements at the exchange rate at the end of the year, what amount has to be reported: the cost in the foreign currency, the cost in Canadian dollars at the historical exchange rate (at the investment date), or the cost in Canadian dollars at the current exchange rate in accordance with the financial statements?

If the share capital of the foreign affiliate is owned by the reporting entity, report the cost in Canadian dollars at the historical exchange rate. If an election has been made under paragraph 261(3)(b) of the Income Tax Act to use a functional currency, then report the book cost in that currency. If the share capital of the foreign affiliate is owned by a controlled foreign affiliate of the reporting entity, or another person related to the reporting entity, and the cost in Canadian dollars at the historical exchange rate is readily available, report that amount on the form. Otherwise, report the historical cost in the foreign currency and indicate the foreign currency being used. Include the appropriate currency code from the list contained in the instructions.

Financial information of the foreign affiliate (Part II – Sections 2 (2021 version) and 3 (2012/2017 version) of Form T1134)

For which foreign affiliate do I have to submit financial statements?

For tax years or fiscal periods that begin before 2021, each reporting entity is required to include the unconsolidated financial statements (including the notes to the financial statements) of each foreign affiliate in respect of which a T1134 Supplement is filed.

When filing the T1134 forms for tax years or fiscal periods that begin after 2020, each reporting entity must also include the financial statements and the notes to the financial statements for each controlled foreign affiliate as well as each foreign affiliate in respect of which the reporting entity holds 20% or more of the voting interest.

Where the reporting entity is deemed to own shares of a separate corporation that is a controlled foreign affiliate because of subsection 95(11) of the Act, it must also provide a separate set of unconsolidated financial statements for each such separate corporation that reflect the tracked property and activities as described in that provision, as well as the income, loss or gains in respect of such property and activities.

When filing the T1134 form for taxation or fiscal periods that begin after 2020, this information must be included for each reporting entity within the related Canadian group in situations where a representative reporting entity is filing on behalf of a related Canadian group.

It's not always possible to provide all the required financial information of a foreign affiliate that's not controlled. What should the taxpayer do to avoid the penalty for not reporting?

The taxpayer must make a reasonable effort to get the required information. If the taxpayer cannot provide the required information, they must demonstrate that due diligence was exercised in trying to get it. In Part IV of the T1134 Supplement, the taxpayer is required to disclose the steps taken to get the information and the reasons it was not available.

Under what circumstances will the CRA accept consolidated financial statements?

The CRA does not accept consolidated financial statements to satisfy the reporting requirements under Part II, Section 2 of the 2021 version or Part II Section 3 of the 2012/2017 version of Form T1134.

How does the CRA interpret the phrase "available to you as a shareholder" in Part II, Section 3 (2012/2017 version) and “available to you” in Part II, Section 2 (2021 version) of Form T1134?

The financial information that is available to you as a shareholder includes all information to which you, as a shareholder, are legally entitled to get from the foreign affiliate.

What does the CRA mean by "income or profits tax paid or payable" on accounting income in Part II, Section 3 of 2012/2017 version of Form T1134? Does it mean only the current provision component of the tax provision, as reflected in the foreign affiliate's financial statements? Or is it the tax liability from the foreign affiliate's income tax return?

For purposes of Form T1134, "income or profits tax paid or payable" means the income tax liability from the foreign affiliate's income tax return.

The income tax liability reported on Form T1134 must include loss carry-overs and losses of another entity in the same corporate group when such losses are offset by an intercompany charge by the corporate group. If the corporate group does not make an offset or adjustment to income taxes, there must be no adjustment to income tax paid or payable for purposes of these reporting requirements.

If income tax paid or payable is to be determined for a foreign affiliate that is part of a group that files its tax returns on a consolidated basis, each foreign affiliate must report the tax liability allocated to it where there is a reasonable intercompany charge or offset.

Where adjustments to tax paid or payable have occurred after filing Form T1134, only those adjustments that are significant have to be reported. This can be done by sending a letter to the CRA to indicate these adjustments. An amended form is not required.

Nature of income of controlled foreign affiliate (Part III)

Can dollar amounts be rounded to the nearest thousand?

Yes.

Part III, Section 2 of Form T1134 asks for gross income amounts from certain sources. Are these amounts to be provided based on Canadian income tax measurement rules or based on local accounting standards and local tax measurement rules?

The amounts must be reported based on local accounting standards and local tax measurement rules. If the amounts are not reported in Canadian dollars, the currency code of the currency in which the amounts are reported must be provided in the space available.

In Part III, Section 3 of Form T1134 (concerning the different sources of "foreign accrual property income" or "FAPI"), should the reporting taxpayer indicate 100% of the FAPI income earned by the controlled foreign affiliate? Or should they indicate the percentage attributable to the reporting taxpayer?

For the controlled foreign affiliate's tax year that ends in the reporting taxpayer's tax year, the reporting taxpayer must report 100% of the amount of FAPI earned in that year.

What is the definition of "total participating percentage" as used in Part III, Section 3 of the 2012/2017 version of the Form T1134 and “participating percentage” as used in Part III, Section 3 of the 2021 version of the Form T1134?

"Total participating percentage" has the same meaning as "participating percentage" under subsection 95(1) of the Income Tax Act and subsection 5904(1) of the Income Tax Regulations. The participating percentage is the part of the FAPI that's attributed to the reporting taxpayer.

Are the amounts of FAPI to be reported on a gross or net basis in Part III, Section 3 of Form T1134?

The gross amount of FAPI must be reported.

What is the definition of "excluded property" for the purposes of Part III, Section 4, of Form T1134 of the 2012/2017 version of the T1134 or Part II, Section 3.B. Question 4 of the 2021 version of the T1134?

"Excluded property" is defined under subsection 95(1) of the Income Tax Act.

On Form T1134, the instructions for Sections 4 and 5 of Part III of the 2012/2017 version and for Sections 3 and 4 of Part III of the 2021 version indicate that the reporting taxpayer has to provide information about capital gains and losses realized by the foreign affiliate, as well as income of the foreign affiliate that's from an active business. Is the taxpayer required to attach to the form details on the capital gains and losses and income of the foreign affiliate?

No. However, the taxpayer must keep related information on-hand in case of an audit.

Note

Version 2021 of Form T1134 has been released on February 3, 2021 and is to be used for taxation years beginning after 2020. For taxation years that began before 2021, continue to use the 2012/2017 version of the form T1134.

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