Foreign Income

Toronto income tax lawyer analysis on reporting Foreign Affiliates to CRA

Every Canadian taxpayer has an obligation to file a T1134 “Information Return Relating to Controlled and Not-Controlled Foreign Affiliates” form with the CRA regarding all foreign affiliates of the taxpayer. Under the Income Tax Act it is mandatory for every reporting entity to file a prescribed form T1134 in respect of each foreign affiliate of the entity. The rules relating to foreign affiliates under the Tax Act ensure that individuals are not able to evade the provision of the Income Tax Act by using the corporate form.  Therefore under the Tax Act, the word “reporting entity” also includes a resident taxpayer of which a non-resident corporation is a foreign affiliate at any time in the year. Our Toronto income tax lawyers will help you report income that stems from, or assets situated in, a foreign jurisdiction as per the rules of the Income Tax Act.

The T1134 form provides the CRA with all information about the foreign affiliate of the reporting entity. The information that is filled out in the T1134 form includes book value of the shares in the foreign affiliate owned by reporting entity, consolidated financial statements of the foreign affiliate, any amounts owing to the foreign affiliate by the reporting entity , total assets of the foreign affiliate, net income of the foreign affiliate, taxes paid or payable by the foreign affiliate on account of its net income, breakdown of the foreign affiliate’s income and whether the foreign affiliate earned any foreign accrual property income (FAPI) during the reporting period. In order to make an accurate analysis of the business activities and financial position of the foreign affiliate, it is necessary that the taxpayer fills out all the information carefully, even though the form is very complex. Our expert Toronto income tax lawyers will help you fill the T1134 form and complete the tedious task.

Every year that the T1134 form is not filled according pursuant to subsection 162(7) of the Income Tax Act, a penalty of $2,500 has to be paid. A penalty of $500 per month up to $12,000 annually has to be paid by any taxpayer who either knowingly or negligently fails to file the T1134 form.  The penalties for failing to file a T1134 form keep on escalating and can totally crush a taxpayer’s operations. Thus assistance from our top Canadian income tax lawyers is an absolute necessity. Taxpayers who failed to file the T1134 form as required will be eligible for CRA’s Voluntary Disclosure Program if CRA has not contacted them for any tax issues, the failure to file form T1134 is subject to a penalty and the voluntary disclosure identifies all areas of the taxpayer’s non-compliance with the Income Tax Act and  a year has passed since a taxpayer was required to file a T1134 form. A successful voluntary disclosure completely eliminates penalties, removes the possibility of criminal prosecution and normally reduces interest charges. Our Toronto income tax lawyers are experts on CRA’s Voluntary Disclosure Program and can help you get compliant with the Income Tax Act by filing a Voluntary Disclosure with CRA to eliminate possible penalties , prosecution and will also help to reduce interest on unreported income owing on account of your foreign affiliates.