Form T1134 for a Canadian Who Owns a US Corporation or LLC: The Foreign Affiliate Report, Its Thresholds, and the Dormant-Company Exception

Short version: Form T1134 Explained: Canadians With Foreign Affiliates

The T1134 is the form Canadian residents with US entities most often learn about from a penalty notice, because the US advisor who set up the structure had no reason to know it existed. The obligation: a Canadian resident individual, corporation, or trust (and certain partnerships) that owns shares of a foreign affiliate at any time in the year must file Form T1134 — the Information Return Relating to Controlled and Non-Controlled Foreign Affiliates — within ten months after the end of the taxation year. A foreign affiliate is a non-resident corporation in which the taxpayer holds at least 1% directly and, together with related persons, at least 10% of any class of shares; a controlled foreign affiliate is one the taxpayer controls (alone or with related and connected persons, under the extended definitions). Because Canada classifies a US LLC as a corporation for these purposes, the Canadian who owns a US LLC — the single-member LLC that the US disregards entirely — owns a foreign affiliate and files a T1134 for it, one of the corridor's least expected consequences of the LLC mismatch. What the form discloses: a summary of all foreign affiliates and a supplement for each one — identification, ownership structure, financial statement information (or the unconsolidated financials attached), the affiliate's income by type, the computation of foreign accrual property income (the FAPI guide covers what it is), the surplus account information that governs how later dividends are taxed, and details of transactions between the taxpayer and the affiliate. The form is substantial for an active corporation and mercifully short for a small one. The exception that matters for small structures: a taxpayer whose foreign affiliates are all dormant or inactive need not file the detailed supplement (and, where the total cost amount of all foreign affiliates is below the stated threshold — C$100,000 — need not file at all for the dormant affiliates), where "dormant or inactive" means the affiliate had gross receipts below C$100,000 in the year (the threshold for tax years beginning after 2020, raised from C$25,000) and total assets with a fair market value below C$1 million throughout the year. The exception spares the Canadian who holds a small shelf LLC or an inactive US company, but it does not spare the Canadian whose LLC owns a US$400,000 rental property (total assets over the threshold) or whose US consulting corporation bills US$150,000 a year (gross receipts over it) — the ordinary US structures of the corridor mostly exceed the dormant thresholds. Penalties: the standard late-filing penalty is C$25 per day, minimum C$100 and maximum C$2,500 per return per year; where the failure is knowing or grossly negligent, the penalty rises to C$500 per month up to 24 months; and where a demand to file has been issued and ignored, higher again — with the additional and less-visible consequence that the reassessment period for the year is extended by three years where the form wasn't filed (the same extension the T1135 carries), keeping the year open for the CRA's other questions. Coordination with the US side: the US owner of a US corporation files nothing for the entity's ownership (it's domestic to the US), so the T1134 is a Canadian-only filing for a US corporation; a US LLC that is disregarded in the US but a foreign affiliate in Canada produces a Canadian information return for an entity the US doesn't see; and the financial statement information the T1134 asks for comes from the US entity's own books — a reason to keep the US entity's accounts in a form that can be reported in Canadian terms, with the US federal return (Form 1120 for a corporation, Schedule C or E for a disregarded LLC) as the source. The surplus accounts are the form's long-term value: exempt surplus (active business income earned in a treaty country — the US — distributable tax-free to a Canadian corporate shareholder), hybrid surplus (certain capital gains), and taxable surplus (FAPI and other income) determine how a future dividend from the US affiliate is taxed in Canada, and a Canadian owner who has never tracked them cannot prove the character of a distribution years later — the T1134 filed annually is how the tracking happens. The catch-up for the Canadian who has never filed: the CRA's Voluntary Disclosures Program covers missed information returns where penalties would apply and the conditions are met; where the affiliate is dormant and below the cost threshold, the analysis may show no filing was ever required; and where the LLC is a rental holding vehicle, the T1134 catch-up usually arrives alongside the FAPI computation and the unwind analysis the foreign affiliate review produces.

Key takeaways

• Who files: any Canadian resident owning at least 1% (and 10% with related persons) of a non-resident corporation — including a US LLC, which Canada treats as a corporation — annually, within ten months of year-end.
• What it discloses: ownership, financial statements, income by type, the FAPI computation, surplus accounts, and related-party transactions — a substantial form for an active affiliate, a short one for a small holding.
• The dormant exception: gross receipts under C$100,000 (for tax years beginning after 2020) and total assets under C$1 million throughout the year — and no filing at all where all affiliates are dormant and their total cost is below C$100,000; ordinary rental LLCs and consulting corporations usually exceed the thresholds.
• Penalties and the statute: C$25/day (C$100 to C$2,500) for ordinary late filing, C$500/month for knowing or grossly negligent failures, more after a demand — and a three-year extension of the reassessment period for the year.
• The surplus accounts are the form's real value: exempt, hybrid, and taxable surplus decide how every future dividend from the US entity is taxed in Canada — trackable only through the annual filing.
• Catch-up routes: the Voluntary Disclosures Program for penalty-bearing failures; a documented no-filing-required position for genuinely dormant affiliates; and the FAPI and unwind analysis alongside, for the rental LLCs that usually prompt the discovery.

The annual T1134 routine

Inventory every non-resident corporation you own, LLCs included, with your percentage and any related persons' holdings. Apply the foreign affiliate test (1% / 10%). For each affiliate: gather the year's financial statements from the US return and books; apply the dormant test (receipts and assets) to see whether the supplement or the whole filing can be skipped; complete the supplement with the income-by-type breakdown, the FAPI computation, and the surplus account roll-forward; file within ten months of year-end (the deadline differs from the T1's April 30 — calendar it separately). For a single active US corporation the routine is a few hours annually; for a portfolio of entities it is a project; for the dormant shelf company it is a one-line memo documenting the exception.

Worked example

A Kitchener resident owns three US entities. Entity one: a Wyoming LLC formed on a US lawyer's advice to hold a Phoenix rental worth US$380,000 — a foreign affiliate (Canada sees a corporation), controlled, assets above the dormant threshold: full T1134 supplement annually, with the rental income computed as FAPI (no employees) and the surplus accounts started; her discovery of the requirement comes six years in, through a CRA letter after a T1135 review, and the catch-up runs through the Voluntary Disclosures Program with six years of T1134s, penalties waived, and the FAPI inclusions assessed with the foreign accrual tax deduction — followed by the unwind analysis that moves the property to direct ownership. Entity two: a Delaware corporation running an active e-commerce business with a US warehouse and four employees, US$900,000 in revenue — full supplement annually, income characterized as active business income (deferred, and exempt surplus for her Canadian holding company), the T1134 filed on time every year since formation because her Canadian accountant asked the right question at incorporation. Entity three: an inactive Nevada LLC from an abandoned project, US$3,000 in a bank account, no receipts — dormant (receipts and assets below thresholds) and, with the total cost of her dormant affiliates below C$100,000, no supplement required; a memo in her file documents the exception each year. Three entities, three different filing outcomes — and the one that cost her was the one a US professional built without a Canadian in the room.

Official sources

A Canadian resident that owns shares of a foreign affiliate must file Form T1134; for tax years beginning after 2020, "Form T1134 must be filed within 10 months" of the end of the reporting taxpayer's tax year. — Canada Revenue Agency, T1134 Information Return Relating to Controlled and Non-Controlled Foreign Affiliates, https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1134.html

The CRA explains that foreign accrual property income earned by a controlled foreign affiliate of a Canadian resident is included in the resident's income in the year earned, with a deduction for foreign accrual tax, and reported on Form T1134. — Canada Revenue Agency, Foreign affiliates and foreign accrual property income, https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1134.html

Practitioner note

The T1134 is the form that turns a US lawyer's default LLC into a Canadian information return nobody told the client about, and it arrives in our practice through CRA letters far more often than through planning. Our annual routine inventories every non-resident entity a Canadian client holds, applies the foreign affiliate and dormant tests, and files the supplement that starts the surplus accounts — because the dividend a client takes from a US company a decade from now is taxed on a history that only exists if someone recorded it.

See also: For Subpart F inside a Canadian corporation, see Subpart F inside a Canadian corporation; and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the foreign affiliate reporting engagement — entity inventory and foreign affiliate determination, dormant-exception analysis and documentation, the annual T1134 supplement with FAPI computation and surplus account roll-forward, and Voluntary Disclosures Program catch-up for missed years. See cross-border pricing or book a call.