T1134: Updates on Foreign Affiliate Information Return 

The T1134 form, which pertains to Information Return Related to Controlled and Non-Controlled Foreign Affiliate, has recently seen some modifications. For tax periods beginning post-2020 (specifically from January 01, 2021), this form should be submitted within ten months following the fiscal year-end. The form has experienced significant alterations. If you’ve been submitting the T1134 previously, it’s crucial to familiarize yourself with the latest updates. 

Who Should File? 

• Canadian residents who possess shares of either a “foreign affiliate (FA)” or “controlled foreign affiliate (CFA)” at any point during the year. 
• Only non-resident corporations qualify as FA or CFA. Non-corporate entities don’t fall under FA. 

Defining a Foreign Affiliate (FA):  

In simple terms, a foreign affiliate is a non-resident corporation where: 

• A Canadian taxpayer holds a minimum of 1% equity. 
• The combined equity percentage of the Canadian taxpayer and related taxpayers is not below 10%. 

When is an FA a Controlled Foreign Affiliate (CFA)? An FA becomes a CFA for a taxpayer if the taxpayer has control over it. This control refers to the ability to elect the majority of the FA’s directors. 

Who Must File? Entities, whether individuals, corporations, trusts, or partnerships, that have a Direct Equity Percentage in an FA or CFA during the tax year must file. 

Who is Exempted from Filing? Individuals who become tax residents of Canada in the year of immigration are exempt. However, those who leave and later return to Canada still need to file. 

Key Changes in T1134 from 2021: 

• New Filing Deadlines: Entities now have only 10 months post their tax year-end to submit T1134. 

• Reporting for Dormant/Inactive FAs: Even dormant or inactive foreign affiliates now have reporting requirements. 
• Additional Disclosure Requirements: New reporting mandates can considerably increase the time and cost for entities. These include: 
• Reporting for indirectly owned non-controlled foreign affiliates. 

• Tracking interests under specific rules. 
• Disclosure of the adjusted cost basis of shares. 
• Revenue from non-arm’s length transactions. 
• Additional disclosures for tax-deferred reorganization and foreign affiliate dumping rules. 

T1134 Summary Vs. Supplemental Information: While T1134 is a summary information return, the T1134 Supplement is filed for each individual foreign affiliate that mandates reporting. 

Penalties and Missed T1134s: Not filing T1134 on time can result in hefty penalties. The late filing penalty is $25 per day, with a minimum of $100 and a maximum of $2,500 for each T1134 supplement. 

Voluntary Disclosure Program for T1134s: Entities that missed filing T1134s in previous years can use the Voluntary Disclosure Program (VDP). This program can offer protection from criminal prosecution and possible waiver of penalties and interest.