Category Archives: Offshore corporations

CANADIANS WITH FOREIGN AFFILIATES TARGET OF 2018 FEDERAL BUDGET

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.

 

INTERNATIONAL TAX ASPECTS OF CANADIAN TAX PROPOSALS RE PRIVATE CORPORATIONS

On July 18, 2017, Canada’s Finance Minister Bill Morneau released a document entitled Next Steps in Improving Fairness in the Tax System by Closing Loopholes and Addressing Tax Planning Strategies. This was no surprise-the Minister had hinted at this some months ago at a tax conference. In a nutshell, the Minister, and his many left-leaning… Continue Reading

CANADIANS WITH FOREIGN REAL ESTATE CORPORATIONS CAN FACE SURPRISING FAPI ISSUES

A Canadian resident who is a shareholder of a “controlled foreign affiliate” (“CFA”) will have special Canadian tax issues if that CFA earns “foreign accrual property income” (“FAPI”). Any corporation that is not resident in Canada (“Forco”) will be a CFA of a particular Canadian resident if it is controlled by that Canadian resident.  However,… Continue Reading

MORE HOGWASH ON OFFSHORE TAX AVOIDANCE FROM TORONTO STAR/CBC DUO-CANADA’S TIEAs GET A BUM RAP!

Most readers of the June 17, 2016 edition of the Toronto Star could not have failed to notice the headline of a prominently featured article: “Tax loopholes cost Canada billions in lost revenue” This was followed by the following subheading: “Canada used agreements meant to crack-down on tax evasion to open-up tax loopholes” What a… Continue Reading

FOR CANADIANS MAKING OFFSHORE VOLUNTARY DISCLOSURES, SLOPPINESS WITH CORPORATE RESIDENCY MAY BE A BLESSING!

With all the furor arising from the now infamous “Panama Papers”, more and more Canadians with undeclared offshore holdings will become very nervous about their situations. Whether they have been clients of Mossack Fonseca or not, the prospect of heightened levels of scrutiny and disclosure regarding offshore holdings is certainly a reality. It seems more… Continue Reading

FOREIGN CORPORATIONS THAT ARE RESIDENT IN CANADA-HOW ARE THEY TAXED?

As a general rule, any corporation formed in Canada is deemed to be resident in Canada for the purposes of the Income Tax Act (“the Act”)[1]. This is true even if the “central management and control” (“CMC”) of that corporation is located outside of Canada. But is the converse true? Certainly not! Unlike our neighbors… Continue Reading

SPECIAL CANADIAN TAX CONSIDERATIONS FOR IMMIGRANTS WITH WHOLLY-OWNED FOREIGN CORPORATIONS

      Wealthy immigrants to Canada will often have interests in a private foreign corporation (“Forco”). Certain related tax planning considerations have already been touched on elsewhere in the Canadian International Tax Blog-see the following two articles:    “How Wealthy Immigrants to Canada Can Use a Holding Company to Create a Tax-free Pipeline” “Special… Continue Reading

CANADIAN OFFSHORE CORPORATE TAX PLANNING FOR DUMMIES-PART 10

Canada Revenue Agency Reporting Requirements 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… Continue Reading