Foreign Reporting — Montreal CPA Firm Near You: Understanding T106, T1134, T1135, T1141, T1142 and Canada’s Foreign Disclosure Rules

Foreign reporting refers to a set of Canada Revenue Agency (CRA) information returns required when Canadian individuals, corporations, partnerships, or trusts own foreign property, hold interests in foreign affiliates, conduct transactions with non-residents, or deal with non-resident trusts. These rules exist to prevent offshore non-compliance and to ensure Canadians disclose foreign income, assets, and relationships fully.

Foreign reporting is one of the most serious compliance areas in Canadian taxation. The penalties for failing to file—or filing late—can reach tens of thousands of dollars per year, even when no tax is owing. CRA uses these filings to match foreign income, monitor cross-border transactions, and enforce Canada’s anti-avoidance rules.

This guide explains the main foreign reporting forms—T106, T1134, T1135, T1141, and T1142—who must file them, what they cover, and why they matter.

Legal and Regulatory Framework

The Income Tax Act requires extensive reporting when Canadians engage in foreign transactions or hold interests outside Canada. The CRA uses the information to detect:

• Undeclared foreign income

• Offshore assets

• Loans and transactions with non-resident trusts

• Controlled and non-controlled foreign affiliates

• Transfers of funds abroad

• Unreported distributions or loans from foreign entities

Foreign reporting obligations apply to:

• Individuals

• Corporations

• Trusts

• Partnerships

• Professional corporations

• Canadian-resident beneficiaries of foreign trusts

Foreign reporting forms are information returns, not tax returns—however, failure to file can trigger severe penalties and extend CRA’s reassessment period.

Key Court Decisions

Canadian courts have confirmed that:

• Foreign reporting penalties apply even when there is no tax owing

• Lack of knowledge is not an acceptable defence

• Taxpayers are responsible for gathering foreign financial information

• CRA may receive information from foreign governments through international agreements

• False or incomplete reporting can result in gross-negligence penalties

Cases involving the T1135 form demonstrate that CRA cross-matches foreign investment disclosures with banking, brokerage, and tax-treaty partner information to identify discrepancies.

Why CRA Targets Foreign Reporting

Foreign reporting is high-risk because:

• Foreign assets often generate unreported income

• Offshore structures can hide corporate or personal income

• Transactions with non-resident trusts are used for tax avoidance

• Foreign affiliates hold significant business activities abroad

• Large penalties encourage full disclosure

• International agreements now provide CRA with global banking information

Penalties for non-compliance can reach:

• $25 per day (minimum $100, maximum $2,500)

• Up to $2,500 per year for T1135

• Higher penalties for repeated failures

• Gross negligence penalties of $500 per month (maximum $12,000)

• Additional penalties for false statements or omissions

• Criminal prosecution in extreme cases

Mackisen Strategy

Mackisen guides individuals, corporations, partnerships, and trusts through the full foreign reporting landscape by:

• Identifying which foreign forms apply

• Analyzing investments, trusts, affiliates, and cross-border structures

• Completing complex forms like T1134 and T106

• Ensuring correct valuation of foreign property

• Coordinating with foreign accountants, bankers, or trustees

• Filing late reports through the Voluntary Disclosures Program (VDP) when needed

• Preventing penalties and ensuring full compliance

Our expertise ensures accuracy, clarity, and peace of mind for clients with international ties.

Real Client Experience

A business owner missed multiple T1134 filings for a U.S. subsidiary. Mackisen reconstructed historical records, filed through the VDP, and avoided tens of thousands in penalties.

An investor with foreign rental property failed to file T1135 for several years. We submitted amended returns, calculated income, and corrected non-compliance before CRA issued penalties.

A family trust received a loan from a non-resident trustee. We filed T1142, prepared supporting documentation, and coordinated with foreign advisors.

A Canadian who inherited offshore accounts was unaware of disclosure obligations. Mackisen reviewed the accounts, filed T1135 forms retroactively, and ensured full CRA compliance.

Information Return for Non-Arm’s Length Transactions With Non-Residents — Form T106

Who Must File

Corporations, partnerships, trusts, and certain individuals must file T106 when they have:

• Loans to or from non-residents

• Transfers of property

• Fees, rents, royalties, or management fees

• Services provided or received

• Interest payments

The requirement applies only to non-arm’s-length non-residents (e.g., foreign subsidiaries, foreign parents, or related parties).

Penalties

Failure to file can result in:

• $25 per day (minimum $100, maximum $2,500)

• Additional penalties for late filing

• Gross-negligence penalties for false reporting

T106 is about transactions, not income or assets.

Information Return Relating to Foreign Affiliates — Form T1134

Who Must File

Corporations, individuals, partnerships, and trusts must file T1134 if they have:

• A controlled foreign affiliate (CFA)

• A non-controlled foreign affiliate (NCFA)

• Any interest, direct or indirect, in a foreign affiliate

Foreign affiliates include foreign corporations where the Canadian taxpayer has significant equity or voting interest.

What It Reports

• Ownership structure

• Financial statements

• Surplus accounts

• Foreign accrual property income (FAPI)

• Capital gains and losses

• Transactions between affiliates

Penalties

Severe penalties apply for late filing or incomplete information.

Foreign Income Verification Statement — Form T1135

Who Must File

Canadian residents must file T1135 if at any time during the year they owned:

• Foreign property costing more than $100,000 CAD

Foreign property includes:

• Foreign investment accounts

• Foreign stocks (excluding stocks held through Canadian brokers)

• Real estate outside Canada

• Certain foreign trusts

• Foreign mutual funds

Foreign property does not include:

• Foreign personal-use real estate

• Foreign property through a RRSP/TFSA

• Property used in an active business

What It Reports

• Country of property

• Maximum cost amount

• Income earned

• Gains or losses

• Foreign institutions holding funds

Penalties

• $25 per day up to $2,500

• Additional penalties for gross negligence

• CRA may reassess for additional years

Transfers or Loans to a Non-Resident Trust — Form T1141

Who Must File

Individuals, corporations, trusts, and partnerships must file T1141 if they transfer or lend property to a:

• Non-resident trust

• Foreign arrangement

• Offshore structure

This form alerts CRA to potential attribution rules and trust anti-avoidance provisions.

Penalties

Similar to other foreign reporting forms, with significant consequences for non-compliance.

Distributions From a Non-Resident Trust — Form T1142

Who Must File

Any Canadian taxpayer who receives a distribution or loan from a non-resident trust must file T1142.

What It Reports

• Amount of distribution

• Nature of property received

• Loans from the non-resident trust

• Unpaid loans (subject to anti-avoidance rules)

Penalties

Failure to file can result in monetary penalties and CRA review of foreign structures.

Common Questions

Is foreign reporting required even if I owe no tax?
Yes. Foreign reporting is about disclosure, not tax.

What if the foreign property never earned income?
You still must file T1135 if cost exceeds $100,000.

What if I didn’t know about foreign reporting?
You can correct past years through the Voluntary Disclosures Program.

Do cryptoassets outside Canada count as foreign property?
If held on foreign exchanges, they may require T1135 reporting.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses and individuals stay compliant while recovering the taxes they’re entitled to. Whether you own foreign real estate, operate an offshore affiliate, or received funds from a non-resident trust, our expert team ensures precise reporting, accurate documentation, and protection from severe CRA penalties.

If you have foreign holdings or transactions, Mackisen can determine which forms apply, complete all foreign reporting, and ensure full compliance with CRA rules