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Updated on February 19, 2024
If you have foreign property or you carry out transactions with non-residents, make sure you complete all the required tax forms.
Based on certain criteria, Canadian taxpayers (individuals, corporations, trusts, etc.) may have to file one or more information returns with the Canada Revenue Agency (CRA) each year.
Completing these forms is rather complex. Therefore, it is in your interest to consult an international tax specialist to help you meet all of your tax obligations.
N.B. You must file these returns even if you do not have any tax to pay, or risk incurring hefty penalties.
If you have not filed certain returns in the past, you might be able to correct your situation under the federal voluntary disclosure program. Please note that there is no equivalent form for provincial purposes.
Form T1134 – Information Return Relating to Controlled and Not-Controlled Foreign Affiliates
Information Return Relating to Controlled and Non-Controlled Foreign Affiliates is one of the tools used by the CRA to gather information about investments in foreign affiliates that are held by Canadian residents. A foreign affiliate is a corporation in which a Canadian resident has a significant interest:
- The resident owns at least 1% of the capital;
- The resident and related persons own at least 10% of the capital.
All Canadian taxpayers in this situation must file this form each year.
Here are the main points to know:
- The T1134 form includes a summary and supplements. You must file a separate supplement for each foreign affiliate in which you have a significant interest, whether or not your control this corporation.
- Caution: penalties also apply for each supplement that has not been filed and can therefore accumulate quickly.
- Even if a foreign affiliate is inactive, you must report certain information.
- The deadline for filing the form is 10 months after the end of the taxpayer’s year.
Form T1135 – Foreign Income Verification Statement
The Foreign Income Verification Statement must be filed by a Canadian taxpayer (individuals, corporations and some trusts) that, at any time during the tax year, owned specified foreign property costing more than C$100,000. It must be filed each year when this situation applies.
Here are some examples of specified foreign property:
- funds and bank accounts held outside Canada;
- shares of foreign corporations, but not those of a foreign affiliate, for which you must file form T1134;
- intangible property (patents, copyright, etc.) situated outside Canada;
- debt securities issued by a non-resident;
- shares of Canadian corporations on deposit with a foreign broker;
- real estate situated outside Canada (except those strictly for personal use);
- precious metals and futures contracts held outside Canada.
This property does not include:
- personal-use properties;
- property used or held exclusively in the course of an active business carried on by the taxpayer;
- mutual funds registered in Canada and invested in foreign shares;
- investments held in retirement funds.
Form T1135 must be filed at the same time as the Canadian taxpayers’ income tax return.
Form T106 – Information Return of Non-Arm’s Length Transactions with Non-Residents
The Information Return of Non-Arm’s Length Transactions with Non-Residents must be filed annually for all transactions between a taxpayer who carries on a business in Canada and a non-resident to which the taxpayer is related, when the total value of these transactions exceeds C$1 million during the tax year.
Transactions affected by this include in particular:
- tangible and intangible property;
- rent;
- royalties;
- services;
- advances, loans or other trade accounts payable to or receivable from related non-residents.
These transactions also apply to transactions with a partnership where a non-resident person is a partner.
Here are the main points to know:
- It is important to have an up to date, detailed portrait of your business’s structure in order to know exactly all of your non-arm’s length relationships with non-residents.
- The T106 form includes a summary and supplements. You must file a separate supplement for each non-resident with which you deal during the tax year, or risk having to pay a penalty for each unfiled supplement.
- Filing a T106 does not relieve you of the obligation to also file Form T1134 or Form T1135, if you are in a situation that requires that they be filed. For example, you might have to complete T106 and T1135 if you lend money to a foreign parent company.
- Form T106 must be filed at the same time as the income tax return.
Do you have questions? Our team of international taxation experts can help you file the required forms. Contact us to speak with one of our specialists.