What is a T1134 Information Return Relating to Foreign Affiliates? | Empire CPA (2024)

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Tax Question:

What is a T1134 information return relating to controlled and non-controlled foreign affiliates?

Facts:

If a Canadian corporation or individual has an interest in a foreign affiliate, whether controlled or not, it will need to complete a T1134 information return. The T1134 information return is broken into two forms, a summary and a supplement. A separate supplement must be filed for each foreign affiliate. There is a new version of the form for tax years that begins after 2020.

A foreign affiliate is a non-resident corporation where a Canadian corporation owns at least 10% of the non-resident corporation’s shares, whether directly or indirectly. The foreign affiliate is considered to be controlled if there is “de jure” control which is usually simply owing the majority of the votes. Control also includes “de facto” control which occurs when a person has direct or indirect influence strong enough to control even though they do not have the votes.

If the total cost of foreign affiliates is less than $100,000 and the foreign affiliates are inactive or dormant, form T1134 does not need to be filed. A foreign affiliate is considered to be inactive or dormant when it has gross receipts of less than $25,000 and assets with a fair market value of less than $1,000,000. For tax years that begin after 2020, a foreign affiliate is considered to be inactive or dormant when it has gross receipts of less than $100,000 and assets with a fair market value of less than $1,000,000.

The T1134 summary form requires the Canadian taxpayer to provide organizational structure information. This includes the name of the affiliated corporation, its country of residence and the taxpayer’s equity percentage in the foreign affiliate. For tax years that begin after 2020, the T1134 summary has changed and collects some additional information such as a new table to complete if the taxpayer has been involved in any reorganization at the Canadian level, a question asking if the taxpayer is submitting a group organizational chart and a new table to complete if any foreign affiliate meets the dormancy thresholds such that no T1134 supplement is required to be filed.

The T1134 supplement form requires each foreign affiliate to report its address, country of residence, type of business activity, the historical cost of the shares, equity percentage, debt between the corporations, and financial information. Controlled foreign affiliates must also report their number of employees, the composition of revenue, capital gains (losses) and foreign accrual property income (FAPI). There are also several questions to answer regarding the foreign affiliate. For tax years that begin after 2020, the T1134 supplement has changed and collects some additional information such as four new tables under the Capital Stock of foreign affiliate section that requires taxpayers to indicate whether they have direct or indirect ownership, the requirement to provide unconsolidated financial statements for each foreign affiliate is now only applicable for foreign affiliates in which the taxpayer holds at least 20% of the voting shares and gross revenues are required to separate between arm’s length sources and non-arm’s length sources.

For tax years that begin in 2020, the information return will have to be filed within 12 months of the reporting taxpayer’s tax year. For tax years that begin after 2020, the information return will have to be filed within 10 months of the reporting taxpayer’s tax year. Penalties for not filing on time are significant, $25 per day up to a maximum of $2,500. If you have not filed yet as you were unaware of the filing requirements, the penalties may be waived if the information return is submitted under the Voluntary Disclosure Program.

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Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.