In this issue of The Tax Issue, we go around the horn of foreign reporting requirements of the CRA. These forms were first introduced back in 1995 and have been filed on a rather inconsistent basis by taxpayers in the past. That is, until the CRA in 2006 decided to enforce the onerous penalty provisions in place for late filers.
If you are required to file any of these forms and haven’t been, I would suggest you get cracking. There is a chance the CRA will waive the penalties if you come forward through the voluntary disclosures program before they make a request.
Form T106 should be filed by anyone who carries on a business and has transactions with related non-resident persons. An example would be a corporation who regularly charges management fees to its foreign parent, or has borrowed money from a related foreign entity.
Luckily for most of us, there is an exemption from filing if the total amount of the transactions does not exceed $1,000,000. If you are required to file this form, it is due with your income tax return.
File form T1134-A for a taxpayer with a non-controlled foreign affiliate (a non-resident corporation in which the taxpayer’s equity is not less than 1% and the total equity percentage of the taxpayer and related persons is not less than 10%)
File form T1134-B for a taxpayer with a controlled foreign affiliate (a foreign affiliate that is controlled by not more than 4 Canadian residents with or without the taxpayer, or persons not at arm’s length with the taxpayer)
Because of the onerous amount of information requested on these forms, they are due within 15 months after the end of the fiscal year. Where applicable, they must be filed by corporations, individuals and trusts.
If you have ever transferred funds or made a loan to a foreign trust, you may have to file form T1141. If you have received a distribution or a loan from a foreign trust, you may be required to file form T1142. A foreign trust is a trust not resident in Canada and has at least one Canadian resident beneficiary or a beneficiary that is a controlled foreign affiliate of a Canadian resident. These forms are due on the filing due date for the Canadian filer.
Form T1135 is what many individuals see on their personal returns each year. It is required from any Canadian resident taxpayer (including corporations and trusts) who owns foreign investments with a cost of more than $100,000 at any time in the year. The form applies to “specified foreign property” which includes money deposited outside Canada, shares of foreign corporations, foreign rental property, loans to non-residents, interests in non-resident corporations, trusts, and partnerships. Exclusions include property held in the course of carrying on an active business, and personal use property (such as a vacation property).
Returns are due on the filing due date of your income tax return.
Penalties for non-filers can be heavy. For simple non-compliance the fine is $25 per day (maximum $2,500), or $500 per month (maximum $12,000) for non-compliance due to gross negligence. If Revenue Canada requests the information and does not receive it, they will charge $1,000 per month (maximum $24,000). If forms remain unfiled for more than 24 months, an additional 5% fine will be added to the above.
If you do not have a drawer full of the above forms, you can download them (and any others, for that matter) from the CRA site on the world-wide web.