January 08, 2013
Montreal, Canadian Corporate Tax
National Director, Process Improvement and Technology, Tax
The CRA has released new Form T1134, "Information Return Relating To Controlled and Not-Controlled Foreign Affiliates (2011 and later taxation years)", which combines both the previous Forms T1134A, "Information Return Relating to Foreign Affiliates that are not Controlled Foreign Affiliates" and T1134B, "Information Return Relating to Controlled Foreign Affiliates". Due to the changes to the definition of a "dormant" or "inactive" entity, certain foreign affiliates that were previously exempt may now have to file the form if the historical cost of the reporting entity in the foreign affiliate is $100,000 or greater.
New Form T1134 is comprised of a summary form to consolidate information, and a separate supplement form for each foreign affiliate being reported (similar to Form T106, "Information Return of Non-Arm's Length Transactions with Non-Residents"). New Form T1134 requires more information than Forms T1134A and T1134B, specifically for investments in controlled foreign affiliates.
Although taxpayers will need more time to obtain this additional information, it is not clear whether the older forms (and reporting requirements) will still be allowed during a transitional period. The CRA has not yet clarified whether there will be a transitional period to file the older versions of the form.
New Form T1134 - Highlights of the changes
The new Form T1134 Summary form:
- Introduces a new question in Section 1 regarding short year-ends within the reporting entity's normal year-end. The CRA confirmed that taxpayers that answer "yes" to this questions are no longer required to attach a statement if they are filing Form T1134 on an annual basis, but must now at least file the two-page Form T1134.
- Requires only one signature (instead of signatures on each Form T1134B or T1134A).
- Includes information on the contact person in the certification section, in addition to the authorized signer (previously, the form only had information on the signer).
- Increases the reporting requirements for information on the group (sections A, B, C and D of Section 3), in particular for investments in partnerships.
The new Form T1134 Supplement filed for each foreign affiliate:
- Requires the book historical cost amount and gross amount of debt information (requested in section 2 of Part II) to be reported in Canadian currency where there is no elected functional currency (previously, amounts in any foreign currency were acceptable)
- Includes space to enter hybrid surplus amounts in section 4 of Part II
- Requires that actual revenue amounts (and associated currency codes) must be indicated in Section 2 of Part III (previously, the form allowed taxpayers to enter ranges of income)
- Adds two new alternatives for property income that has been re-categorized to active business income in section 5 of Part III.
The new form T1134 instructions:
- Significantly restrict the exemption to file Form T1134 so that even if the criteria of the definition of "dormant" or "inactive" are met (i.e., gross receipts are less than $25,000 and fair market value is less than $1 million), taxpayers must still file Form T1134 if the cost amount for the foreign affiliate is $100,000 of more (similar to the $100,000 threshold found on Form T1135, "Foreign Income Verification Statement"). The CRA has confirmed that "cost" refers to the initial historical cost amount.
- Modifies the gross receipts to include any receipt received in the year, including non-revenue receipts such as loans. This definition is more consistent with the concept of "reportable transactions" for purposes of Form T106. However, Form T106 reportable transactions excludes intercompany current accounts and only includes "loans, advances, and similar amounts". It is unclear whether this definition is broad enough to include intercompany current accounts.
For more information, contact your KPMG adviser.
Information is current to January 08, 2013. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500