CRA is reviewing how to deal with an error on its T1135 form, and its impact on other foreign reporting forms

CRA has released the official versions of the 2021 CTF Roundtable. For convenience of reference, we set out a chart below with links to the items and our summaries and to descriptors that we prepared shortly after the conference.

There is one change to the official answers (as compared to an earlier version) that caught our eye.

Q.14 of the Roundtable dealt with the T1135 form and related disclosure stated that specified foreign property “does not include … a share of the capital stock or indebtedness of a foreign affiliate,” without disclosing that the definition “foreign affiliate” for these purposes is narrower than the definition in s. 95(1). For example, if a Canadian corporation holds debt of a foreign “grandchild” subsidiaries whose shares are held by its immediate Canadian subsidiary, then (by virtue of s. 233.4(2)(a) as it applies pursuant to para. (k) of the “specified foreign property” definition in s. 233.3(1)), it will not be considered to be holding debt of a “foreign affiliate,” so that such debt will be required to be disclosed on the T1135 form.

In its preliminary response, CRA indicated that applications for cancellation of interest or penalties for taxpayers that were misled by the T1135 wording would be entertained by CRA, and that it also encouraged taxpayers to voluntarily correct past filing errors through submitting adjustments or applying under the voluntary disclosure program.

In its final version, CRA added:

At this time, the CRA is in the process of consulting internal stakeholders to evaluate and potentially develop a position on this issue, while giving consideration to the impacts on other foreign reporting forms.

Neal Armstrong. Summary of 3 November 2021 CTF Roundtable Q. 14, 2021-0911951C6 under s. 233.3(1) – specified foreign property - (k).