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International tax is complicated at the best of times, but CRA’s new T1134 form really kicks it up a notch. Thankfully, the team at Zeifmans has plenty of experience in this regard, and a solid handle on the details of what is required in order to remain compliant with the increased disclosure requirements.
The T1134 is a mandatory annual filing for Canadians who own more than 10% of a foreign corporation. Taxation years beginning in 2021 will need to file 10 months after the end of the taxation year. The trouble is that in increasing the disclosure requirements on these forms, CRA has made it imperative that the person filing has an existing knowledge of the complexities and obscurities of Canadian international tax law. In essence, if you want to ensure you’re doing it right, you’ll need to hire a professional. More than that, you’ll need to hire a professional with the specific subject matter expertise.
The updates aren’t all bad though. The dormant/administrative exception has been expanded. The annual gross receipt threshold has increased from $25k to $100k. That being said, dormant affiliates will still need to provide a certain amount of basic information under the new rules. Also, groups of Canadian reporting entities can now file a consolidated T1134 rather than individual filings for each affiliate.
The new T1134 at a glance
The additional information required is quite extensive. But below you will find a summary of some of the necessary new data.
– Transaction details of a CFA as it pertains to surplus accounts, liquidations and dissolutions, and reorganizations
– Upstream loan details
– PLOI election data and foreign affiliate dumping rules
– Foreign Accrual Property Losses and Capital Losses
– Breakdown and data on any adjustments to the cost base of the foreign affiliate’s preferred and common shares
– Number of employees
– Lower-tier non-CFAs
– Gross revenue, divided by type and distinguished between arm’s length and non-arm’s length
Late filing
The basic penalty for late filing is $25 per day, and a minimum of $100 or maximum of $2500 for those not filed. That being said, if the CRA has issued a demand to file, the fine “may” rise from $1000 per month to $24,000 for each T1134 not filed. If a foreign affiliate is facing substantial penalties and interests, it’s worth considering participation in the CRA Voluntary Disclosure Program, which allows a request for leniency.
Relief options
Where the Canadian entities’ total cost of interest for all foreign affiliates is less than $100k, and the affiliate is inactive or dormant, CRA is offering administrative relief for filing the T1134.
To qualify as inactive/dormant, the affiliate must:
– Have had gross receipts of less than $100k
– Have no assets at any time equaling a total fair market value exceeding $1M
Gross receipts are considered to be any receipts received during the applicable year, including loans.
How to handle the new T1134 requirements
It’s unfortunate that CRA has not distinguished between filing requirements for large multinational corporations, and private enterprises and individuals. While the existing complexities for foreign investment were already onerous, the new requirements could be downright discouraging. It’s basically essential that anyone filing the T1134 will now need the assistance of a professional, and one with the specific subject matter expertise necessary for compliance.
At Zeifmans, we have a depth of experience in international tax law that far exceeds many of our competitors. In addition to our overall knowledge of investment, business growth, and cross-border issues, accurately ensuring compliance with the T1134 filing is an area where we are uniquely equipped to offer expert guidance and support.
To learn more about how Zeifmans can help you in successfully filing your T1134 under the new requirements, reach out to our team today.
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