Massive overhaul on the horizon - Significantly expanded form T1134


Are you prepared for sweeping information disclosure changes in respect of your foreign investments? On Nov. 27, 2020, the Canada Revenue Agency (CRA) released a preview of the revised form T1134 , Information Return Relating to Controlled and Non-Controlled Foreign Affiliates. Although the revised version provides certain administrative relief, it has significantly expanded the scope of reporting to incorporate relevant legislative amendments made since the last major revision to form T1134 in 2012. The revised form will be officially published by the CRA in January 2021, and will be used for reporting entities’ taxation years that begin after 2020.


Form T1134 is intended to enhance transparency in the reporting of overseas business and investment activities through foreign affiliates and/or control foreign affiliates (CFA) owned by Canadian residents. It helps the government monitor a taxpayer’s compliance with foreign-source income reporting and to collect information to combat international tax evasion and avoidance.

Form T1134 is generally required to be filed by a reporting entity (can be a Canadian resident corporation, individual, and certain partnerships and trusts) that owns shares in a FA at any time during the year, subject to certain exceptions. The due date of the form was 15 months after the end the taxation year of the reporting entity. Recent legislative changes accelerated the due date to 12 months for taxation years beginning in 2020, and to 10 months for tax years beginning after 2020.

Key revisions

Form T1134 summary

Group of reporting entities that are related to each other

Reporting entities that are members of a related group that have the same taxation year-end and functional currency in that taxation year will have the option of filing one set of T1134 forms on behalf of the group. The group can include individuals, corporations, trusts and partnerships. This change could reduce some of the compliance burden for reporting entities of a related group; currently such reporting entities must each file their own separate set of T1134 forms.

Reporting of domestic reorganizations

Reporting entities will need to indicate whether they are involved in domestic reorganization transactions such as tax-free rollovers under section 85 and 85.1(3), amalgamations under section 87 or wind-ups under subsection 88(1) during the year. Currently, the form is generally limited to disclosure of transactions that would impact surplus accounts.

Requirements to file T1134 supplements

Tracking interest rules were introduced in 2018 to tackle arrangements where Canadian taxpayers were circumventing the foreign accrual property income (FAPI) rules by owning shares of a foreign subsidiary that were specifically tracked to segregated investments (tracking shares), but where the overall ownership percentage in the subsidiary was low enough to avoid the CFA status. The revised form T1134 incorporates the tracking interest rules, which can deem the segregated accounts of a single foreign subsidiary to be separate businesses or notional corporations. If the reporting entity is deemed to own shares of a separate corporation that is a CFA because of the tracking interest rules, it is required to file a T1134 supplement in respect of each notional, separate corporation.

Organizational structure

Reporting entities will have the option of submitting a group organizational chart instead of providing detailed information in a table format, which is currently the only option. All the information that must currently be provided such as name of the foreign affiliate, country of residence, equity percentage, address (in case of a partnership) are still required to be included with the group organizational chart.

Dormant foreign affiliates

If T1134 supplements are not filed for dormant foreign affiliates, information such as gross receipts and gross revenue, and nature of assets held by the foreign affiliates (e.g., funds, shares, real property etc.) will have to be reported to prove that these entities are indeed “dormant”.

Lower-tier foreign affiliates

If T1134 supplements are not filed for lower-tier non-CFAs (for example because the reporting entity or a CFA of a reporting entity does not have a direct equity percentage in the foreign affiliate), the reporting entity will still have to disclose in the revised form T1134, among other things, whether:

  • any ”transformation” transactions were undertaken that impacted its surplus account balance(s) in respect of the foreign affiliates,
  • there were any changes in the equity percentage in the foreign affiliates, and
  • any intercompany loans were made from and to these foreign affiliates, or any dividends were distributed by these FAs (including any elections made to bypass the surplus distribution rules).

T1134 supplements

Capital stock of the shares of foreign affiliates

Currently, only book cost of the shares of certain foreign affiliates is required to be reported, whether they are top-tier or lower-tier. The revised form T1134 requires more detailed information on the adjusted cost base (ACB) of both common shares and preferred shares (if applicable) of the top-tier FAs or CFAs, including:

  • any subsection 93(1) or 93(1.2) election made and the elected amount,
  • ownership percentage,
  • the amount of the ACB, and
  • increases and decreases, on a gross basis, to the ACB during the year.
Foreign affiliate dumping (FAD) rules

The FAD rules very generally state that where a corporation resident in Canada that is controlled by a foreign corporation makes a downstream investment in a foreign affiliate, a reduction in cross-border paid-up capital or a deemed dividend subject to withholding tax may result. The revised form T1134 requires reporting entities to indicate whether the FAD rules apply to any transactions during the year, whether any event during the year has reinstated the paid-up capital previously grinded and whether any exceptions to the FAD rules apply. As such, more disclosure is required to ensure that the form T1134 reporting is consistent with the reporting entity’s Canadian income tax returns.

Surplus account

Currently, only dividends paid from foreign affiliates to the reporting entities are required to be reported in the form T1134. The revised form T1134 requires that all dividends paid from one foreign affiliate to another should be reported and any deemed 93(1) election should be disclosed. Reporting entities need to answer whether any election was made with respect to the dividend ordering rules, such as the pre-acquisition surplus election.

Further, the revised form T1134 requires the reporting entities to disclose whether any loan made by the foreign affiliate could be subject to the upstream loan rules and if so, the amount of the surplus balances used to shelter the upstream loan income inclusion.

These new requirements underscore the importance of maintaining and updating surplus computations on a timely basis.

Composition of revenue

Additional breakdown of each category of a foreign affiliate’s income between arm’s length and non-arm’s length sources will be required. The CRA indicates that if the foreign affiliate is only providing the total gross revenue amount without any breakdown between arm's length and non-arm's length sources, 100% of the amount reported will be considered to be from non-arm's length sources, which could be detrimental in computing that foreign affiliate’s FAPI.

Foreign accrual property loss (FAPL) and foreign accrual capital loss (FACL)

In addition to reporting gross FAPI, the amount of FAPL and FACL incurred during the year is required to be reported. Therefore, if a taxpayer has historically not been reporting FAPI due to excess FAPLs and FACLs, the taxpayer will need to start keeping detailed loss balances in order to report these beginning in 2021.


There are substantial penalties for failure to file the form T1134 by the due date and failure to provide complete and accurate information. While related Canadian groups can choose to file one set of T1134 forms for the group (provided that all the relevant conditions are met), penalties will still apply to each reporting entity as if the entity had filed (or failed to file) the returns on its own.

A taxpayer may seek relief of late filing penalties and interest through CRA’s Voluntary Disclosure Program (VDP).

CRA’s next step in addressing tax avoidance

The updates made to the form T1134 are aligned with the 2020 Fall Economic Statement, which emphasizes the government’s commitment to combatting international tax evasion and aggressive tax avoidance. These revised forms expand the scope of disclosure in numerous and important ways, which will facilitate CRA’s audit activities. It is now critical for taxpayers to review their outbound investment structures to identify potential compliance and tax exposures to best prepare for the next T1134 reporting period.


Kathleen Luan

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