T1134 foreign affiliate reporting form changes

Will you be ready?

The Canada Revenue Agency recently published the new Form T1134 (Information Return Relating To Controlled and Non-Controlled Foreign Affiliates). The changes, which will apply to taxation years that begin after 2020, are coming quickly, with the December 31, 2021, form due by October 31, 2022. Now is the time for organizations with foreign affiliates to consider what the changes mean for them and the additional data and disclosures required.

Key information required

To begin preparing to comply with the new form, consider whether the following information will be readily available with respect to foreign affiliates:

Surplus balances of foreign affiliates
Adjusted cost base (for Canadian tax purposes) of foreign affiliate shares
Equity percentage and surplus entitlement percentage in foreign affiliates
Split of foreign affiliate revenue type by source (arm’s length versus non-arm’s length)
Foreign accrual property income (FAPI), foreign accrual property losses (FAPL) and foreign accrual capital losses (FACL)
Application of the foreign affiliate dumping rules and related filing positions and elections
Upstream loan balances and related filing positions
Details of any foreign affiliate elections or transactions
Details of any reorganizations of the Canadian reporting taxpayer

Issues for organizations to consider

The revised Form 1134 raises several issues and considerations for organizations, including:

More detail on passive revenue composition (e.g. interest/royalties): Are you able to extract this from your enterprise resource planning (ERP) system?
Expanded tax attribute disclosures: Have you been maintaining these calculations?
Foreign affiliate dumping: Are you tracking the implications and elections?
Requirements for significant transactional information: Can you appropriately track the transactional information required?
FAPI disclosures: Do you require FAPI/FAPL calculations?

Other considerations

Will financial and tax information for the foreign affiliates be available in time to file the forms?
Can data automation and analytics help you collect and analyze information or prepare the forms?
Which other stakeholders in the organization need to be aware of these changes?
What resources are available internally or externally to complete the forms and the attribute calculations?