Monthly Archives: February 2018


The Federal Budget that was released on February 27, 2018 contained proposals that will definitely make life more difficult for Canadians who have a “foreign affiliate” (“FA”).

In general terms, a non-resident corporation will be a FA of a Canadian resident if that Canadian resident owns at least 10% of the shares of any class. However, such corporation may be a FA even if as little as 1% is owned if related shareholders also own shares. The key measures are as follows:


Extended Reassessment Period-As a general rule, the CRA may not reassess the tax payable for a particular year if 3 years have passed since the date of original assessment (4 for corporations that are not CCPCs). There are certain situations where there is an “extended reassessment period”, which adds another 3 years. The Budget proposes to expand such situations to include those that relate to the income of a FA. This will apply to taxation years that begin on or after February 27, 2018. This would be particularly significant for taxpayers who hold an interest in a “Controlled Foreign Affiliate” (“CFA”) that is earning “Foreign Accrual Property Income” (“FAPI”).


T1134 Filing Deadline-Generally, taxpayers who have an interest in a FA must file a special information return with the CRA (form T1134) each year. This is in lieu of filing the more general information return with respect to foreign investment in connection with such holdings (T1135).

Historically, the deadline for filing this return has been 15 month after the taxation year of the reporting taxpayer. Presumably, this was in recognition of the fact that obtaining the required information might be rather time-consuming, particularly in the case of large multi-national corporations.

Notwithstanding such potential difficulties, the deadline will now be shortened to 6 months after the end of the year for taxation years beginning in 2020 and subsequent years.


Tracking Shares/Cell Companies-In the past, it was been possible to circumvent the FAPI rules by the use of “cell corporation” or other corporation using a “tracking share” structure. In effect, a Canadian resident would have an interest in a FA that would be tied into the results from a certain pool of corporate assets. Since the corporation would not be a CFA, there would be no need to report unremitted FAPI. Furthermore, when all of the activities of that FA were combined, its income might be considered “active business income”, rather than FAPI, so such income could be repatriated tax-free to a Canadian corporate shareholder.

The Budget contains measures aimed at preventing the use of such corporations to defer Canadian tax for taxation years starting on or after February 27, 2018.