2017-0691241C6 IFA 2017 Q.6: T1134 filing issues

Principal Issues: Would the CRA consider extending its administrative relief in certain situations?

Position: No.

Reasons: Granting the administrative relief requested would not be consistent with the purpose of the T1134 reporting requirement.

Author: Carruthers, Lori
Section: -

2017 International Fiscal Association Conference
CRA Roundtable

Question 6 – T1134 filing issues

The CRA has provided some administrative relief from duplicate or repetitive reporting for form T1134. In cases where administrative relief has been provided, the apparent intent was to reduce what would otherwise be considered an undue compliance burden for the reporting entity. Such duplicate or repetitive reporting often arises due to the requirement of a reporting entity to file a T1134 in respect of controlled foreign affiliates or foreign affiliates that are owned at any time in the reporting entity’s taxation year. Some examples of where administrative relief has been provided include reporting for dormant or inactive entities, reporting for short taxation years or fiscal periods such as where there is an acquisition of control, and reporting on the organizational structure in Section 3 of Part I of the form.

a)    Assume Canco1 owns a controlled foreign affiliate (“CFA1”) and Canco2 owns a controlled foreign affiliate (“CFA2”), and all the corporations have a December 31st taxation year-end. On August 1st, Canco1 and Canco2 amalgamate to form Amalco. As a result, Canco1 and Canco2 each has a deemed taxation year-end on July 31st. Each owned its respective controlled foreign affiliate at some point in that short taxation year and, therefore, would have a requirement to file a form even though CFA1 and CFA2 do not have a taxation year-end in that short taxation year that is relevant for Section 3 of Part II of the form.

Assume that Amalco will select December 31st as its new taxation year-end. It will be required to file a T1134 in respect of both CFA1 and CFA2 for their December 31st taxation year, as it also would have owned those entities at one point in its taxation year. 

Accordingly, the information reported by Amalco in respect of CFA1 and CFA2 would cover the December 31st year-end of those entities. Amalco would also be required to complete Section 4B(2) of Part II of the form to indicate that it acquired the shares of the controlled foreign affiliates in its taxation year.

As the relevant information in respect of the December 31st taxation year of CFA1 and CFA2 would be reported by Amalco in Section 3 of Part II of the T1134 it files, the filing of a T1134 by Canco1 and Canco2 for their short taxation year would appear to provide little additional information that would not already be reported. 

Would the CRA consider extending its administrative relief to situations such as the above where there is a deemed taxation year-end due to an amalgamation of two or more taxable Canadian corporations? 

b)    Where the shares of a foreign affiliate are transferred sequentially to higher or lower tier Canadian corporations, multiple reporting would be required for that foreign affiliate, even though the information reported may be minimal for the reporting entities that did not own the foreign affiliate’s shares at the end of the foreign affiliate’s tax year. As well, reporting the same organizational structure in Section 3 of Part I of the T1134 form for each reporting entity would be repetitive. 

Would the CRA consider providing administrative relief in situations such as the above where multiple Canadian-resident taxpayers or partnerships in a group are required to file a T1134 for the same foreign affiliate because they owned the foreign affiliate’s shares for a moment in the year, but only one taxpayer or partnership in the group owned the foreign affiliate’s shares at the end of the foreign affiliate’s tax year? 

c)    For Canadian taxpayers with large foreign affiliate groups, the requirement to paper file the forms and their attachments is extremely burdensome. As well, generally, an additional paper copy of all forms is requested by CRA auditors when they commence the audit of the applicable Canadian reporting entity.   

Is there an expected time frame for being able to electronically file the T1134 forms?

CRA Response

a)    It is noted that Part II Section 3 and Part III Sections 1, 2, 3, and 4 of a T1134 filed by Canco1 and Canco2 for CFA1 and CFA2, respectively, in the scenario described above, would require limited to no information being reported due to there being no taxation year-end of the affiliate ending in the reporting entity’s taxation year-end (i.e., July 31st).

Granting the administrative relief requested, however, would not be consistent with the purpose of the T1134 reporting requirement which is to provide the CRA with an accurate record of the history of foreign affiliates and transparency of offshore structures. In the CRA’s view, not having Canco1 and Canco2 file a T1134 for CFA1 and CFA2, respectively, could diminish the accurate record of history the reporting is designed to provide.

b)    Similar to the response in a), if multiple reporting is required in the scenario described above, Part II Section 3 and Part III Sections 1, 2, 3, and 4 of perhaps all but one of the multiple T1134s filed would require limited to no information being reported due to there being no taxation year-end of the affiliate ending in the reporting entity’s taxation year-end (i.e., July 31st).

Granting the administrative relief requested, however, would not be consistent with the purpose of the T1134 reporting requirement. Where multiple Canadian-resident taxpayers or partnerships in a group owned a particular foreign affiliate’s shares for a moment in the year but only one taxpayer or partnership in the group owned the foreign affiliate’s shares at the end of the foreign affiliate’s tax year, in the CRA’s view, not having each owner file a T1134 for the foreign affiliate would diminish the transparency of offshore structures the reporting is designed to provide.

c)    Work is currently ongoing with a view to allowing electronic filing of the T1134 information returns (as well as the T106). As of today, it is anticipated that corporations will have the ability to electronically file these information returns in mid 2017. The ability to transmit supporting financial documentation, however, will not be available at the same time. Work will continue towards adding this functionality.

Lori M Carruthers
2017-069124
April 26, 2017

Response prepared in collaboration with:

Claudia Shalaby
International Tax Division
International, Large Business and Investigations Branch

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