CRA taking inspiration from the IRS: new form T1134

A “reporting entity” (being a Canadian resident individual/corporation/trust, or a partnership in which Canadians own collectively more than 10% or that owns interests in a “foreign affliate”) is required to file T1134 forms annually. Generally, a “foreign affliate” is a non-Canadian corporation in which the Canadian, along with related persons, owns 10% or more of any class of shares.

A revised T1134 form has been issued by the Canada Revenue Agency (CRA) for tax years beginning in or after 2021. It is exponentially more complicated and intrusive compared to the previous version, requesting significantly more information from Canadian taxpayers.

Completing it properly requires specialised knowledge of Canadian international tax rules, as it requires detailed responses in complex areas such as foreign surplus accounts and reorganisation rules. These disclosures, if done incorrectly, will likely lead to increased CRA audit exposure.

Additionally, the filing due date has been accelerated. Historically, Form T1134 was due 15 months after year end; this has been shorted to 10 months for taxation years that begin after 2020. This gives taxpayers less time not only to complete the forms, but to obtain supporting documents on their foreign affliates such as financial statements.

However, the de minimus filing requirements for filing the T1134 have also changed. T1134 filing is not required if all of the below are met:

1. Total cost amount at any time in the year of the interest in that foreign affliate was <CAD 100,000;
   
   
2. Foreign affliate had gross receipts (including proceeds from the disposition) of <CAD 100,000 in the year; and
   
   
3. Foreign affliate had assets with a total fair market value of <CAD 1 million throughout the year.

An inaccurate or incomplete T1134 filing may lead to substantial penalties. It is important to properly comply with T1134 filing requirements, and affected taxpayers should immediately begin gathering the necessary information to comply.

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