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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: How the $25,000 of gross receipts used in the definition of a "dormant or inactive foreign affiliate" in the form T1134 is calculated when the FA is the general partner of a partnership?
Position: The total gross receipts of the partnership must be considered in the calculation of the gross receipts of the FA.
Reasons: In the case of a form, the term "prescribed" is defined in subsection 248(1) as the information authorized by the Minister of National Revenue. Furthermore, the subsection 96(1) does not deem the partnership to be a separate taxpayer for purposes of section 233.4.
XXXXXXXXXX
Marie-Claude Routhier
LL.B., D.D.N., M. Fisc.
2012-045860
July 8, 2013
Subject: Form T1134 and Inactive Corporation Definition
This letter is sent to you in response to your request for interpretation made to the Income Tax Rulings Directorate ("ITRD") on August 9, 2012. We apologize for the delay in responding to your request.
In your letter, you requested our opinion regarding the interpretation of the term "inactive foreign affiliate" ("inactive FA") for the purposes of Form T1134 Information Return Relating To Controlled and Not-Controlled Foreign Affiliates ("T1134"). Specifically, where an FA is the general partner of a partnership, you wish to confirm whether the amount of $25,000 of gross receipts provided for in the definition of inactive FA of Form T1134 must be calculated based on gross revenue of the partnership or on the net revenue allocated by the partnership to the FA.
Please note that, unless otherwise indicated, all statutory references in this letter are to the provisions of the Income Tax Act.
It appears to us that the situation described in your letter could constitute an actual situation involving taxpayers. As stated in Information Circular 70-6R5, it is not the practice of the ITRD to comment on proposed transactions that relate to specific taxpayers otherwise than in the form of an advance income tax ruling. Furthermore, when it comes to determining whether a completed transaction has received adequate tax treatment, the determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments which may be helpful to you.
Our Comments
Please note that since the submission of your request for interpretation, Forms T1134A Information Return Relating to Foreign Affiliates That Are Not Controlled Foreign Affiliates and T1134B Information Return Relating to Controlled Foreign Affiliates have been combined to form one and the same form T1134. The new version of Form T1134 was issued on December 31, 2012 and is to be used for taxation years beginning after 2010. Other amendments were made to the form, as well as to the definition of inactive FA.
Under subsection 233.4(4), a taxpayer ("Filer"), for a taxation year or fiscal period, is required to file a return in prescribed form T1134 with the Canada Revenue Agency ("CRA") in respect of each FA of the entity in the year or period.
According to the instructions in Form T1134, a Filer will not be required to file the form if:
1) the total cost amount to the Filer at any time in the year of the interest in all foreign affiliates was less than $100,000, and
2) the foreign affiliate is "dormant" or "inactive" for the affiliate's taxation year ending in the reporting person’s taxation year.
An inactive SEA on Form T1134 is an FA that, during the taxation year of the FA:
1) had gross receipts (including proceeds from the disposition of property) of less than $25,000 in the year; and
2) at no time in the year had assets with a total fair market value of more than $1,000,000.
For the purpose of completing Form T1134, the definition of gross receipts refers to any receipt received in the year, and not just income amounts. This would include all non-revenue receipts, such as loans.
The T1134 form exemption for inactive FAs is administrative relief. The definition of the term inactive FA was designed for the purposes of the form only and does not refer to the notion of a dormant or inactive corporation that is defined by Canadian commercial law or to that of different Canadian legal dictionaries. In addition, this term, as well as the amount of gross receipts earned by an FA for the purposes of the definition of inactive corporation, are not defined by the Act.
Form T1134 is a prescribed form. In the case of information to be provided on a form, the term "prescribed" is defined in section 248(1) as the information authorized by the Minister of National Revenue, that is, by the CRA. Since the amount of the gross receipts received by a FA constitutes information authorized by the CRA in respect of a prescribed form, it appears that the latter may adopt the definition that it deems appropriate and that will enable it to achieve the objectives set out in the form.
One of the purposes of the existence of the T1134 form, according to the instructions attached to it, is to determine the level of activity of the FA. Therefore, if the FA has an interest in a partnership, the CRA will want to know the level of activity of the partnership in order to establish that of its partners. In addition, it is our understanding that subsection 96(1) does not deem a partnership to be a separate taxpayer from the partners for the purposes of the provisions of section 233.4.
For the purposes of the administrative relief provided in Form T1134 for inactive corporations, we are therefore of the view that the gross revenue earned by a FA that is the partner of a partnership must include all of the gross revenue that the partnership has received in the taxation year or fiscal period and not only the net revenue allocated to the FA. In the situation submitted, the Filer should therefore file Form T1134 to the extent that the sum of the total gross receipts of the FA and the partnership is equal to or greater than $25,000, regardless of the value or percentage of the interest of the FA in the partnership.
We hope that our comments will be of assistance.
Best regards,
Guy Goulet, CPA, CA, M. Fisc.
Manager
International Operations Division
Income Tax Rulings Directorate
Legislative Policy
and Regulatory Affairs Branch
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