Form T1134 is an information reporting requirement for Canadian taxpayers. Using Form T1134, Canadian taxpayers are required to provide certain information about foreign affiliates in which they are shareholders. A party filing Form T1134 is called a “reporting entity” and includes individuals, corporations, trusts, and partnerships. A foreign affiliate is defined as any foreign company in which the reporting entity owns at least 1 percent and the reporting entity and related persons together own 10 percent or more. Form T1134 must be filed annually by each reporting entity that meets the filing requirements. Form T1134 does not directly result in an assessment of any tax due, but failure to file the form may result in penalties and interest on penalties.
NEW CHANGES TO FORM T1134
The Canada Revenue Agency (CRA) issued the revised Form T1134 in February 2021. The new version of Form T1134 will be applicable starting from the 2021 tax year and onwards. The revised form requires more comprehensive disclosure of information and events within the foreign corporate group. The long overdue revision significantly expands the scope of the report and is intended to support the government’s commitment to combat international tax evasion and malicious tax planning.
FILING DEADLINE
The 2021 version of the Form T1134 must be filed within 10 months of the end of the reporting taxpayer’s tax year or, in the case of a partnership, fiscal period.
GROUP FILING OPTION
To reduce the burden of tax filing, the Canada Revenue Agency has introduced a new group filing option. The group filing option is only applicable to reporting entities that are related to each other, have the same taxation year-end, and report in Canadian dollars or in the same functional currency.
INFORMATION TO BE FILED
New Form T1134 is about twice the length as the original form, which is requesting more information than the original form. Additional required information includes:
- An organization chart may be provided in lieu of answering organizational questions.
- Loans from suppliers, which are debts owed by Canadian taxpayers to foreign affiliates, are also required to be disclosed.
- Information on surplus accounts of controlled foreign affiliates, including tax-exempt surplus, taxable surplus, mixed surplus, and pre-acquisition surplus accounts.
- Information about the number of employees must be provided.
- Gross revenue must now be broken down by area of businesses and indicate whether the source is regular or irregular.
- The adjusted cost basis (ACB) of common stock and preferred stock must be disclosed, along with the change in adjusted cost basis for the year.
- Foreign Accrued Property Income (FAPI), Foreign Accrued Property Loss (FAPL), Foreign Accrued Capital Loss (FACL) and Foreign Affiliate Dumping (FAD) require further disclosure.
DORMANT OR INACTIVE FOREIGN AFFILIATE
Previously, a reporting entity was not required to report a dormant or inactive foreign affiliate on Form T1134 if the total cost of the reporting entity’s interest in all foreign affiliates of the reporting entity was less than $100,000. Beginning with the 2021 tax year, these reporting entities will need to list the dormant or inactive foreign subsidiary on the T1134 form, but will not need to file the T1134 schedule (Supplement) for the inactive foreign subsidiary.
To alleviate this additional reporting requirement, more foreign affiliates qualify as “dormant” or “inactive” The definition of dormant foreign affiliate has been updated as follows:
- Gross income (including property disposal gains) for the year is less than $100,000, and
- Does not have assets with a total market value of more than one million at any time during the tax year.
(“Gross income” means “any income received during the tax year” and “includes all non-income income such as loans, etc.”)
PENALTY
The initial fine for not filing Form T1134 is $25 per day (minimum $100, maximum $2,500). If the applicant fails to file Form T1134, or the request issued by the CRA shows that the return did not comply with the filing requirements either willfully or with gross negligence, the penalty increases to $500 per month, up to a maximum of $12,000, which can be doubled to $1,000/$24,000 accordingly if failed to respond to the CRA. After 24 months, there will be additional penalties.
Intentional false statements or omissions on Form T1134, or in cases of gross negligence, will result in a fine of $24,000, or 5% of the maximum cost of stock or debt of the foreign affiliate for the year whichever the larger.
VOLUNTARY DISCLOSURE PROGRAM
The Voluntary Disclosure Program allows taxpayers to voluntarily correct any errors in their tax returns in exchange for potential penalty and interest relief. Taxpayers who use this procedure to correct their previously filed tax information and returns should follow the filing requirements and return forms for the previous tax year. Voluntary disclosure requests can only be submitted if the error has been corrected for at least one year.
OUR SERVICES
Compared with the old form, the content of the new T1134 form is more cumbersome and complicated. We can help you with the following:
- Learn more about the changes made to the new Form T1134,
- Provide the information your business must collect to complete the declaration,
- Update your foreign affiliate’s earnings and ACB calculations,
- Help you complete the form and submit the declaration correctly and efficiently.