Do I need to file a T1134 for my US company?

Probably, if you’re resident in Canada and the US company is a corporation meeting the foreign affiliate test: at least 1 percent equity yourself and at least 10 percent once every related person’s holding is counted with yours. The return is due 10 months after year end. Fall short and the shares stay inside the Form T1135 net instead. One year is exempt: under ITA 233.7, an individual who first became resident in Canada that year files neither return.

What makes my US company a foreign affiliate?

Two equity tests on a taxpayer resident in Canada, and both have to be met at the same time. First a threshold condition: the entity has to be a non-resident corporation, so a US LP, LLP or LLC is a classification question before it is a T1134 question. Test one is about you alone and is set at 1 percent. Test two widens the count to every person related to you and is set at 10 percent. Neither is about control, which is why people who own a slice of a family business are surprised to find themselves inside the definition.

“foreign affiliate, at any time, of a taxpayer resident in Canada means a non-resident corporation in which, at that time, (a) the taxpayer’s equity percentage is not less than 1%, and (b) the total of the equity percentages in the corporation of the taxpayer and of each person related to the taxpayer … is not less than 10%” ITA 95(1)

Your own equity percentage	You plus related persons	Foreign affiliate?
Under 1%	Any amount	No, test (a) fails, and if you’re resident in Canada the shares then count for Form T1135 once you pass its $100,000 threshold
1% or more	Under 10%	No, test (b) fails, and if you’re resident in Canada the shares then count for Form T1135 once you pass its $100,000 threshold
1% or more	10% or more	Yes, both tests met
100%	100%	Yes, and it is also a controlled foreign affiliate
Any percentage	Any amount, in the year you first became resident in Canada	Foreign affiliate status is unchanged and no return is due either way: ITA 233.7 relieves an individual, other than a trust, of both the T1134 and the T1135 for that one year, and never relieves a returning resident

Note what the second row means in practice. Owning 5 percent of a US corporation where nobody related to you holds anything leaves you outside the definition, and outside the definition is not the same as outside the filing rules: it puts the shares back into Form T1135 territory. Owning the same 5 percent where your brother holds another 6 puts you inside it, and your filing obligation turns on his holding rather than on any change in yours.

Who counts as a person related to me?

Not everyone you would call family, and not only people. Related persons under ITA 251(2) are individuals connected by blood relationship, marriage, common-law partnership or adoption, and also corporations, brought in through control. Blood relationship in ITA 251(6) pairs two people and reads in both directions, so it reaches your child or other descendant, your parent or grandparent, and your brother or sister. Marriage carries in their spouses, so a brother’s wife counts. A cousin, uncle, aunt, niece or nephew is a relative in ordinary speech and is not a related person here.

“related persons, or persons related to each other, are (a) individuals connected by blood relationship, marriage or common-law partnership or adoption; (b) a corporation and (i) a person who controls the corporation, if it is controlled by one person, (ii) a person who is a member of a related group that controls the corporation, or (iii) any person related to a person described in subparagraph 251(2)(b)(i) or 251(2)(b)(ii)” ITA 251(2), related persons

“persons are connected by (a) blood relationship if one is the child or other descendant of the other or one is the brother or sister of the other; (b) marriage if one is married to the other or to a person who is so connected by blood relationship to the other” ITA 251(6), blood relationship

Read paragraph (a) as a pair rather than as a list of people below you. It connects two persons where “one is the child or other descendant of the other”, and that sentence is satisfied whichever of the two you start from, so a parent and a grandparent are related persons exactly as a child and a grandchild are. That matters here more than anywhere, because the common family-company shape is a parent who founded it and an adult child holding a slice.

Both edges of the definition cost money. Counting a cousin in produces a filing that was never due, and it pulls attention away from the T1135 that may actually be live. Leaving a corporation out is the more expensive edge: a holding company you control is a related person, so its stake in the US company belongs in the 10 percent total, and anyone who asks only what their family owns will leave it out and file nothing. The one route back to a cousin is paragraph (b): a cousin who married your brother or sister is connected to you by marriage, and is then a related person after all.

What if my US company isn’t a foreign affiliate?

Then no T1134, and if you’re resident in Canada, usually not nothing either. The T1135 rules pull shares of a non-resident corporation in as specified foreign property, then take them back out again if that corporation is your foreign affiliate for T1134 purposes. So falling short of the 1 and 10 percent tests is the very thing that keeps those shares inside the T1135 count, and once your total cost amount of specified foreign property passes $100,000 that return is due, on your own filing-due date for the year rather than 10 months after your year end.

“specified foreign property of a person or partnership means any property of the person or the partnership that is … (c) a share of the capital stock of a non-resident corporation … but does not include … (k) a share of the capital stock or indebtedness of a non-resident corporation that is a foreign affiliate of the person or partnership for the purpose of section 233.4” ITA 233.3(1), specified foreign property

“reporting entity for a taxation year or fiscal period means a specified Canadian entity for the year or period where, at any time (other than a time when the entity is non-resident) in the year or period, the total of all amounts each of which is the cost amount to the entity of a specified foreign property of the entity exceeds $100,000” ITA 233.3(1), reporting entity

“A reporting entity for a taxation year or fiscal period shall file with the Minister for the year or period a return in prescribed form on or before the day that is … (b) where the entity is not a partnership, the entity’s filing-due date for the year.” ITA 233.3(3)

Read those together and this is a switch rather than a ladder. Meet the foreign-affiliate tests and you file a T1134 ten months after your year end. Fall short and the same shares sit in the T1135 count, and that return is due on the day your own return is due. Two things to hold on to. The threshold is total cost amount across all of your specified foreign property rather than market value, and it is not this company on its own. And that exclusion list runs to other paragraphs, so property “used or held exclusively in the course of carrying on an active business of the person or partnership” can drop out for a different reason. Read whose business that is before you reach for it: the active business has to be yours, tested as if you were a corporation resident in Canada, so the fact that the US company you hold shares in is an operating business does nothing for you.

When is it due?

Ten months after the end of the year, and that is its own deadline rather than your return’s. ITA 233.4(4) sets it directly, and it runs from the reporting entity’s taxation year or fiscal period rather than from the foreign company’s year. For an individual on a calendar year, that means the end of October following the year in question.

“A reporting entity for a taxation year or fiscal period shall file with the Minister for the year or period a return in prescribed form in respect of each foreign affiliate of the entity in the year or period within 10 months after the end of the year or period.” ITA 233.4(4)

The separation matters because people file their Canadian return in April, consider the year closed, and then miss a T1134 that was never due in April in the first place. It also means the T1134 deadline is not extended by anything that extends your personal filing.

Who exactly counts as a reporting entity?

A Canadian-resident taxpayer that has a foreign affiliate at any point in the year. The statute frames it as three limbs, one for a non-resident corporation, one for a non-resident trust, and one for a partnership whose non-resident and Part-I-exempt members hold less than 90 percent of its income or loss, and it carves out taxpayers all of whose taxable income for the year is exempt from Part I tax. The phrase to notice is “at any time in the year”, because an affiliate you disposed of in March still generates a filing obligation for that year.

“reporting entity for a taxation year or fiscal period means (a) a taxpayer resident in Canada (other than a taxpayer all of whose taxable income for the year is exempt from tax under Part I) of which a non-resident corporation is a foreign affiliate at any time in the year” ITA 233.4(1)

Do I file for the year I moved to Canada?

No, and this is the one rule on the page that switches off both returns at once. ITA 233.7 says an individual, other than a trust, who first became resident in Canada in the year is not required to file an information return under section 233.4 or section 233.3, so for that year there is no T1134 and no T1135, whatever the percentages come to. Everything above resumes in your second year. The word carrying the weight is “first”, and it is doing real work: if you lived in Canada before, left, and came back, CRA’s position is that the exception is not available to you at all.

“Notwithstanding sections 233.2, 233.3, 233.4 and 233.6, a person who, but for this section, would be required under any of those sections to file an information return for a taxation year, is not required to file the return if the person is an individual (other than a trust) who first became resident in Canada in the year.” ITA 233.7

CRA states the same rule in the T1134 instructions themselves, and states the limit in the same breath.

“As an individual (other than a trust) you do not have to file Form T1134 for the year in which you first become a resident of Canada … The expression ‘first become resident’ in section 233.7 does not include a situation where a former resident of Canada becomes resident of Canada again at a later date. An individual who has already been a resident of Canada during a prior year, whether he or she was a factual resident of Canada or a deemed resident of Canada at that time, may not take advantage of the exception provided in section 233.7 when he or she becomes resident of Canada again during the year. A ‘returning’ resident could immediately be subject to the reporting requirements of section 233.4.” CRA, T1134 instructions, first-year residents

So the two arrivals we see most often land in opposite places. A US founder moving to Canada for the first time, holding all of a Delaware corporation, files no T1134 and no T1135 for the arrival year, then a full T1134 for the next one. A Canadian who left years ago, incorporated in the US and has now come home is inside section 233.4 from the day residence restarts, and the exception the first person relies on does not reach them. It is also a relief for individuals only: a trust gets nothing from it, and neither does a corporation.

Do I have to complete the whole form?

Not the whole form, and the relief is narrower than it sounds. CRA’s instructions let you leave out the T1134 Supplement for an affiliate where your total cost amount of the interest stayed under CAN$100,000 through the year and the affiliate was dormant for its own taxation year ending in yours. Dormant means gross receipts under CAN$100,000 and assets never over CAN$1,000,000 in fair market value. All three have to hold, and the Summary is still filed.

“Do not file Form T1134 Supplement in respect of a foreign affiliate if the total cost amount to the reporting person at any time in the year of the interest in that foreign affiliate was less than CAN$100,000 AND that foreign affiliate is ‘dormant’ or ‘inactive’ for the affiliate’s taxation year ending in your taxation year. Instead, you are only required to provide base level information as required in Part I Section 3. D.” CRA, T1134 instructions, dormancy relief

“a dormant or inactive foreign affiliate means, for a taxation year of the affiliate, one that: had gross receipts (including proceeds from the disposition of property) of less than CAN$100,000 in the year; and at no time in the year had assets with a total fair market value of more than CAN$1,000,000.” CRA, T1134 instructions, dormancy definition

Two details do most of the damage when they get missed. The dormancy year is the affiliate’s own taxation year ending in yours rather than your year, so a US company with a non-December year end is tested on its own period. And gross receipts is not revenue: CRA reads it as any receipt received in the year, loans included, because the test is measuring activity rather than income. One loan advance can take a quiet holding company out of the relief. Do not carry the CAN$100,000 here across to the T1135 question either. This one measures your cost amount in this single affiliate, where the T1135 threshold aggregates the cost amount of every specified foreign property you hold.

What’s the penalty for filing late?

It’s a daily penalty with a floor and a ceiling, and the ceiling is reached in a little over three months. The general information-return penalty applies where no more specific provision does: the greater of $100, or $25 for each day the failure continues up to a maximum of 100 days, so $2,500 at the top. That is not the worst case. Where the failure is knowing or grossly negligent a separate provision takes the total to $12,000, or to $24,000 if a demand to file was also ignored, and past 24 months a further one can lift that ceiling to 5 percent of the cost amount of the shares.

“to a penalty equal to the greater of $100 and the product obtained when $25 is multiplied by the number of days, not exceeding 100, during which the failure continues.” ITA 162(7)

So $2,500 caps that subsection and it does not cap the exposure. A failure that is knowing or grossly negligent is priced by a different subsection, at $500 a month for up to 24 months less whatever the daily penalty already came to, which puts the combined total at $12,000. That monthly figure doubles where the filer also failed to comply with a demand under section 233 to file the return, so the combined ceiling in that case is $24,000. Then, where that gross-negligence penalty applies and the return has also been unfiled for more than 24 months, a third subsection charges 5 percent of the greatest total cost amount of the shares or debt of the affiliate less the penalties already charged under the other two. Read the subtraction carefully: it does not stack on the $12,000, it replaces that ceiling with the 5 percent figure wherever the 5 percent is the larger of the two. And read the precondition just as carefully, because it is the one a worried reader will assume away: the third subsection opens on the filer being liable under the gross-negligence subsection in the first place, so somebody who was simply late, with no knowledge and no gross negligence, stays capped at $2,500 however many years go by.

“Every person or partnership who, (a) knowingly or under circumstances amounting to gross negligence, fails to file an information return as and when required by any of sections 233.1 to 233.4 and 233.8 … is liable to a penalty equal to the amount determined by the formula ($500 x A x B) - C where A is … the lesser of 24 and the number of months, beginning with the month in which the return was required to be filed, during any part of which the return has not been filed … B is … (f) in any other case, 1 … C is the penalty to which the person or partnership is liable under subsection 162(7) in respect of the return” ITA 162(10)

“the person or partnership is liable, in addition to the penalty determined under subsection 162(10), to a penalty equal to the amount determined by the formula A - B … (f) where the return is required to be filed under section 233.4 for a taxation year or fiscal period in respect of a foreign affiliate of the person or partnership, 5% of the greatest of all amounts each of which is the total of the cost amounts to the person or partnership at any time in the year or period of a property of the person or partnership that is a share of the capital stock or indebtedness of the affiliate … B is the total of the penalties to which the person or partnership is liable under subsections 162(7) and 162(10) in respect of the return” ITA 162(10.1)

• What happens to a Canadian corporation when you move to the US, the mirror-direction question
• Whether you need Form 5471 for a Canadian corporation, the US analogue of this filing
• Why a US LLC is usually a trap for a Canadian resident
• FAPI and controlled foreign affiliates, the income inclusion this form reports on, and why the foreign tax deduction rarely covers it

What should I do next?

Check the year first: if this is the year you first became resident in Canada, ITA 233.7 means no T1134 and no T1135 for it, unless you lived in Canada before, which rules the exception out. Otherwise work out two percentages, your own and the total once every related person’s holding is added to it, parents and corporations included. If the first is at least 1 percent and the second at least 10 and you’re resident in Canada, you have a T1134, due at the end of October for a calendar-year individual rather than with your April filing. If either falls short, check Form T1135 instead.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.