Monthly Archives: November 2015

CANADIAN OFFSHORE CORPORATE TAX PLANNING FOR DUMMIES-PART 10

Canada Revenue Agency Reporting Requirements

Tax Planning

A Canco which controls a Forco will have an obligation to submit certain special returns to the Canada Revenue Agency annually.

Failure to file such returns on a timely basis will expose Canco to significant penalties.

 

Form T1134

 

Any Canadian resident, whether a corporation or individual, with respect to which there is a “foreign affiliate” (“FA”) in a taxation year, must file form T1134 within 15 months after the end of that year with the CRA. An exception applies in connection with “dormant” FAs.

This form provides detailed information regarding the corporate structure in relation to FAs, including ownership percentages. In addition, the form requires disclosure of various information regarding the various sources of income earned by the FA in the year,

If a Canadian resident has more than one FA, only one Form T1134 should be filed by that taxpayer. The T1134 will have separate supporting schedules for each FA.

The T1134 reporting for interests in FAs is in lieu of any requirement to report such interests on the more general “Foreign Property” reporting form (T1135).

Accordingly, Canco will need to file form T1134 with the CRA annually in connection with its interest in Forco.

Form T106

 

A Canadian resident that has more than $1,000,000 in business-related transactions with non-residents with which it does not deal at arm’s length is required to file form T106 with the CRA each year by its normal filing due date.

Accordingly, if Canco has transactions that total more than $1,000,000 with Forco, or any other non-arm’s length FA, form T106 must be filed.

This form provides detailed information on the nature of such transactions, as well as some information on the transfer pricing methodology that is used.

 

CANADIAN OFFSHORE CORPORATE TAX PLANNING FOR DUMMIES-PART 7

  Optimal Ownership Structures   So far, I have discussed the use of Forco within the context of a relatively simple structure where it would be a wholly-owned subsidiary of Canco. In many situations, that simple structure will be appropriate, but in others situations, there may be a better alternative. Two common variations are discussed… Continue Reading

CANADIAN OFFSHORE CORPORATE TAX PLANNING FOR DUMMIES-PART 6

Using an Offshore Subsidiary to Finance Other Foreign Affiliates In situations where substantial amounts of capital are needed to finance the active business operations of Canco’s foreign affiliates (“Forcos”), Canadian tax laws provide an incentive for Canco to form a financing affiliate (“Finco”) in an appropriate jurisdiction, which will permit little or no income tax… Continue Reading

CANADIAN OFFSHORE CORPORATE TAX PLANNING FOR DUMMIES-PART 5

Using an Offshore Subsidiary to Hold IP In many corporate groups, particularly in the internet age, the real wealth lies in the IP-patents, trademarks, computer software. Often, it is quite tempting to look for ways to move such IP offshore, both for tax and other reasons. Stories of IP-based companies such as Google and Apple… Continue Reading

CANADIAN OFFSHORE CORPORATE TAX PLANNING FOR DUMMIES-PART 3

  Active Business Income vs. FAPI   The tax benefits of setting-up an offshore structure and establishing Forco will only be present with respect to income earned by Forco that is considered to be income from an active business. If the income is classified as “foreign accrual property income” (“FAPI”), there will generally be no… Continue Reading

CANADIAN OFFSHORE CORPORATE TAX PLANNING FOR DUMMIES-PART 1

  Introduction In my blog that was posted on November 12, 2015,  Canadian Corporations Can Repatriate Profits of Offshore Subsidiaries Tax-free, I explained that Canadian-based corporations, unlike their U.S. counterparts, can usually repatriate the earnings of offshore subsidiaries, free of Canadian tax. This is usually true even if those earnings have borne little or no… Continue Reading