Updated on February 19, 2024

If you have foreign property or you carry out transactions with non-residents, make sure you complete all the required tax forms.

Based on certain criteria, Canadian taxpayers (individuals, corporations, trusts, etc.) may have to file one or more information returns with the Canada Revenue Agency (CRA) each year.

Form T1134 – Information Return Relating to Controlled and Not-Controlled Foreign Affiliates
Form T1135 – Foreign Income Verification Statement
Form T106 – Information Return of Non-Arm’s Length Transactions with Non-Residents

Completing these forms is rather complex. Therefore, it is in your interest to consult an international tax specialist to help you meet all of your tax obligations.

N.B. You must file these returns even if you do not have any tax to pay, or risk incurring hefty penalties.

If you have not filed certain returns in the past, you might be able to correct your situation under the federal voluntary disclosure program. Please note that there is no equivalent form for provincial purposes.

Form T1134 – Information Return Relating to Controlled and Not-Controlled Foreign Affiliates

Information Return Relating to Controlled and Non-Controlled Foreign Affiliates is one of the tools used by the CRA to gather information about investments in foreign affiliates that are held by Canadian residents. A foreign affiliate is a corporation in which a Canadian resident has a significant interest:

• The resident owns at least 1% of the capital;
• The resident and related persons own at least 10% of the capital.

All Canadian taxpayers in this situation must file this form each year.

Here are the main points to know:

• The T1134 form includes a summary and supplements. You must file a separate supplement for each foreign affiliate in which you have a significant interest, whether or not your control this corporation.
• Caution: penalties also apply for each supplement that has not been filed and can therefore accumulate quickly.
• Even if a foreign affiliate is inactive, you must report certain information.
• The deadline for filing the form is 10 months after the end of the taxpayer’s year.

Form T1135 – Foreign Income Verification Statement

The Foreign Income Verification Statement must be filed by a Canadian taxpayer (individuals, corporations and some trusts) that, at any time during the tax year, owned specified foreign property costing more than C$100,000. It must be filed each year when this situation applies.

Here are some examples of specified foreign property:

• funds and bank accounts held outside Canada;
• shares of foreign corporations, but not those of a foreign affiliate, for which you must file form T1134;
• intangible property (patents, copyright, etc.) situated outside Canada;
• debt securities issued by a non-resident;
• shares of Canadian corporations on deposit with a foreign broker;
• real estate situated outside Canada (except those strictly for personal use);
• precious metals and futures contracts held outside Canada.

This property does not include:

• personal-use properties;
• property used or held exclusively in the course of an active business carried on by the taxpayer;
• mutual funds registered in Canada and invested in foreign shares;
• investments held in retirement funds.

Form T1135 must be filed at the same time as the Canadian taxpayers’ income tax return.

Form T106 – Information Return of Non-Arm’s Length Transactions with Non-Residents

The Information Return of Non-Arm’s Length Transactions with Non-Residents must be filed annually for all transactions between a taxpayer who carries on a business in Canada and a non-resident to which the taxpayer is related, when the total value of these transactions exceeds C$1 million during the tax year.

Transactions affected by this include in particular:

• tangible and intangible property;
• rent;
• royalties;
• services;
• advances, loans or other trade accounts payable to or receivable from related non-residents.

These transactions also apply to transactions with a partnership where a non-resident person is a partner.

Here are the main points to know:

• It is important to have an up to date, detailed portrait of your business’s structure in order to know exactly all of your non-arm’s length relationships with non-residents.
• The T106 form includes a summary and supplements. You must file a separate supplement for each non-resident with which you deal during the tax year, or risk having to pay a penalty for each unfiled supplement.
• Filing a T106 does not relieve you of the obligation to also file Form T1134 or Form T1135, if you are in a situation that requires that they be filed. For example, you might have to complete T106 and T1135 if you lend money to a foreign parent company.
• Form T106 must be filed at the same time as the income tax return.

Do you have questions? Our team of international taxation experts can help you file the required forms. Contact us to speak with one of our specialists.

Ethics is more than a moral issue. A strong code of ethics fosters employee commitment and supports appropriate decision-making, no matter what the context. It’s in an organization’s best interest to establish clear measures.

Ethical violations of any kind tend to have a snowball effect in a work environment. When employees see others breaking the rules without consequences, they might think it’s okay for them to do so as well. An organizational culture in which misconduct is tolerated can lead to increased turnover, decreased productivity, and even damage the organization’s reputation and profitability.

What situations require ethical rules?

An organization should have a comprehensive code of ethics that addresses all the scenarios that may affect it, including the following:

Harassment and discrimination

Harassment and discrimination are perhaps the most significant ethical issues affecting businesses today. It is imperative to protect employees from unfair treatment based on age, gender, race, religion, disability.

Fraud and other forms of financial manipulation

Organizations must maintain good accounting practices and avoid any real or perceived conflicts of interest. No organization wants to be caught up in a financial scandal.

Technology and privacy practices

Developments in artificial intelligence and technological security raise privacy concerns for both clients and employees. While electronic monitoring of employees is intended to ensure efficiency and productivity, it can sometimes border on invasion of privacy. With telework, confidential client information is being circulated outside the organization. How can this new dynamic be managed?

Social media whistle-blowing

Another challenge is knowing where to draw the line between firing or penalizing an employee over online whistle-blowing. Usually, it’s when the employee’s behaviour is considered disloyal to their employer. How does this play out in the real world?

What are the benefits of having and following a clear code of ethics?

Improved organizational image

A code of ethics promotes a positive public image by conveying values of integrity, respect for the environment, inclusion, etc.

Enhanced teamwork and cooperation

Introducing a workplace code of ethics helps to create consistent employee behaviour, which in turn promotes openness and trust. As a result, because employees know where they stand, they often perform better.

Safeguarded organizational assets

A clear code of ethics helps prevent theft or the fraudulent use of the organization’s resources.

Improved market positioning

Currently, environmental, social and governance (ESG) criteria are considered important. Organizations with ethical business practices are better positioned in the marketplace.

What should be included in a code of ethics?

A code of ethics should include a statement of the values shared by all staff members. It should also contain:

• the rules and behaviours expected of everyone;
• the mechanisms and measures to ensure compliance;
• the penalties for non-compliance.

What should be done to ensure the code of ethics is clearly understood and applied?

Involve all parties

While it is helpful to have an ethics advisor help develop the code of ethics, it is also important to ensure that all stakeholders in the organization are represented: managers, executives, employees, etc. It is easier to have standards and values respected when they are chosen instead of being imposed from outside.

Draft a concise, specific code of ethics

Does anyone remember reading the employee handbook when they were hired? Keep the code of ethics concise and to the point in a page or two:

• What does the code mean to employees?
• Why is it important?
• What does it mean for them in terms of procedures?

Be specific and avoid legalese. Tailor the code of ethics to the employees’ duties. Beyond common values, someone working in business development needs more specific or different rules than someone working in an assembly room, for example.

Focus on continuous development

Conduct several communication and awareness campaigns throughout the year, and use different media to present the information: short videos, real-life scenarios, focus groups, etc. Not everyone learns the same way.

Bring the code of ethics to life

• Set up an integrity committee that employees can turn to and make sure that there is a follow-up.
• Set up integrity lines where people can report concerns anonymously.
• Communicate to staff the actions taken in response to misconduct.
• Review the code regularly and adapt it when new ethical issues arise.

Establishing a clear code of ethics has become increasingly important in recent years. It is a key factor in dealing with major societal issues and ensuring the organization’s long-term viability. Do not hesitate to contact our experts for support in developing your code of ethics.

Updated on February 19, 2024

Canadian non-residents are taxed on rental income from their properties in the country. What about their tax obligations?

A non-resident (for tax purposes) who earns rental income must meet certain obligations with the Canada Revenue Agency (CRA). These tax obligations are the same whether the non-resident owns a single home for rent or several rental properties in the country. However, they only apply for federal purposes: there is no tax to pay or return to file for this income for provincial purposes.

There are ways to reduce this tax burden, as discussed later on, but here is the basic rule: a 25% deduction at source of the gross monthly rental income must be remitted to the CRA each month, no later than the 15th day following the payment of rent. Failure to withhold or late remittance of the deduction would result in a penalty of up to 10% of the amount of tax that should have been withheld.

Non-residents have two years after the end of the year to file a tax return to deduct rental income expenses. They will then be taxed on the net rental income (income minus expenses), based on the tax rates applicable to individuals.

The 25% monthly withholding tax will be considered an instalment on the tax liability. The CRA will then refund any overpayment.

Please note: if the tax return is not filed, the non-resident will not be able to deduct expenses and the 25% withholding on gross income will be considered a final tax.

A more advantageous solution

Another option, which is usually more advantageous for cash management, is for the non-resident to pay withholding tax based on 25% of estimated net rental income, rather than gross income.

Again, the withholding will be treated as an instalment, but will generally be much lower because it will be based on net income (i.e., income minus expenses).

To take advantage of this solution, the following conditions must be met:

• The tax obligations should be delegated to a paying agent in Canada, who is a trusted Canadian resident and who pays the tax on behalf of the non-resident;
• NR6 form and an estimate of the next year’s rental income and expenses to must be sent to the CRA before the first rent payment date. The withholding tax payment must be attached;
• Undertake to file a Canadian federal income tax return (T1159) by June 30^th of the following year.

What you need to know

Regardless of the option selected, NR4 and NR4 Summary statements must be filed by March 31^st of the year following the end of the taxation year or penalties may apply. These statements show the gross rental income and the tax paid to the government.

In addition, non-residents who own several rental properties in the country must include all of their rental income and expenses in the required documents.

Please note that in some countries, such as the United States, non-residents can deduct the actual tax paid in Canada from their tax return.

Finally, for individuals who have failed, in good faith, to declare their rental income earned in Canada, there is always a way to get their affairs in order while avoiding late penalties if they meet certain conditions.

Do you have any questions? Our team of international tax experts can help you meet your tax obligations and choose the most advantageous solutions. Contact us to speak with one of our specialists.