Foreign Reporting Requirements
In the interest of enhancing compliance with tax laws, gathering information to verify compliance and to better target international tax evasion and aggressive avoidance, the government has established foreign reporting requirements.
The foreign reporting requirements are found in sections 233.1 to 233.7 of the Income Tax Act. In certain conditions, the following must be reported:
- An interest in a foreign affiliate;
- Foreign property in excess of $100,000;
- Transactions with non-arm’s length, non-residents;
- Property transferred or loaned to a non-resident trust; and
- Receiving distributions from, or becoming indebted to, a non-resident trust.
T1134 Foreign Affiliates
Canadian resident taxpayers must report their interest in a foreign affiliate. CRA has a form (T1134) for this purpose. The form consists of a summary and supplement(s). A separate supplement has to be filed for each (active) foreign affiliate (controlled or non-controlled) of the taxpayer (includes individuals, corporations and trusts) or partnership.
The form is due within 15 months of the end of the reporting taxpayer’s tax year or, in the case of a partnership, fiscal period. The form has to be paper-filed.
For taxation years which begin after 2019, the form will be due within six months after the end of the taxpayer’s tax year. This will coincide with the deadline for filing a corporation’s T2 corporate income tax return.
T1135 Foreign Property
Taxpayers (individuals, corporations, trusts and partnerships) resident in Canada must report foreign assets if the total cost of all specified foreign property exceeds $100,000 at any time in the taxation year.
Specified foreign property includes: any funds or intangible property situated, deposited or held outside of Canada, tangible property situated outside of Canada, a share of the capital stock of a non-resident corporation, an interest in a non-resident trust, an interest in a partnership that owns or holds specified foreign property, an interest in a non-resident entity, indebtedness owed by a non-resident person, an interest in or right under a contract, and property that is convertible into, exchangeable for, or confers a right to acquire specified foreign property.
The CRA does not require that all foreign property be reported; most notably, personal-use property does not need to be reported.
Foreign property is reported using form T1135 “Foreign Income Verification Statement.” The form is due on the same day as a taxpayer’s income tax return. For 2014 and later taxation years, the form can be filed electronically.
T106 Non-Arm’s Length Transactions with Non-Residents
Persons resident in Canada must file an information return (T106) in respect of “reportable transactions” in which the reporting person (ie, the person resident in Canada) and the non-arm’s length, non-resident person participated in during the taxation year. The person resident in Canada must file the T106 if the total reportable transactions for all non-residents exceeds $1,000,000.
The form is due on the same day as the taxpayer’s tax return and cannot be filed electronically. The form includes a summary and a T106 slip for each non-resident.
T1141 Information Return for Contributions to Non-Resident Trusts
Canadian residents who have transferred or loaned property to a non-resident trust that has a Canadian beneficiary has to file form T1141.
The reporting entity, must report:
- The identity of the trust, its settlors, trustees and beneficiaries and
- The amount of the transfer or loan.
The form is due at the same time as the reporting entity’s income tax return for the taxation year that includes the trust’s year-end.
This form cannot be filed electronically.
T1142 Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust
Cnadian resident individuals, corporations, trusts and partnerships must file form T1142 if they are beneficiaries of non-resident trusts and if they either receive a distribution from a trust or are indebted to a trust.
Similar to form T1142, the reporting entity must report:
- The identity of the trust and the trustees; and
- The amount of distributions received or the indebtedness owed to the trust.
Again, this form is due when the reporting entity’s income tax return is due.
This form cannot be filed electronically.
Voluntary Disclosure Program
If you have failed to properly meet any of the above foreign reporting requirements, you may be able to take advantage of the CRA’s voluntary disclosure program (VDP) to correct the error. It is important to consult a lawyer before filing a VDP for failing to meet foreign reporting obligations. Recently, the CRA has revised the VDP program and is now filtering applicants into two programs: a general program and a limited program. Taxpayers who qualify under the general program are granted relief from all penalties, 50 percent of the interest and criminal prosecution. Under the limited program, applicants are only granted relief from gross negligence penalties and criminal prosecution. For taxpayers with foreign reporting issues, the limited program is far less favourable. Most of the foreign reporting forms include a significant penalty for each year they are not filed. The CRA will likely filter applicants who have foreign reporting issues into the limited program. A lawyer can assist in avoiding this result.
If you have require assistance reporting foreign income / assets or require guidance with respect to whether you have to report foreign income / assets, please contact one of our tax lawyers.