Non-Arm’s Length Transactions with Non-Residents

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Angela Hardbattle

Tax Question:

What is a T106 Information Return of Non-Arm’s Length Transactions with Non-Residents?

Facts:

A T106 is an annual information return where a corporation reports its non–arm’s length activities with non-residents. Non-arm’s length transactions are generally transactions where the parties are considered to be related.

Discussion:

Form T106 is required as it discloses a corporation’s transfer pricing information to the Canada Revenue Agency (CRA). The CRA uses the information provided in the T106 to screen non-arm’s length transactions for review and audit. A corporation must complete a separate T106 for each non-resident.

Form T106 is required to be filed if:

  • At any time in the tax year, the corporation was a resident of Canada or a non-resident corporation that did business in Canada;
  • The corporation had reportable transactions with a non-resident person whom it was not dealing at arm’s length at any time during the year; and
  • The total reportable transactions exceed $1,000,000 Canadian.

The transactions that are required to be reported include tangible property, rents, royalties and intangible property, services and advances, loans or other accounts receivable or payable to or from a non-resident (beginning and ending balances including gross increases and decreases).

For example, often a Canadian parent corporation will transfer funds to its foreign subsidiary to help cover costs and when the subsidiary has funds, it will transfer it back to the parent. Each transfer of funds would count as a reportable transaction; therefore, the $1,000,000 threshold could easily be met without a company even knowing.

The T106 information return must be filed within six months of the corporation’s tax year end. Penalties for filing late is the greater of $100 or $25 per day up to a maximum of $2,500 for each year. If your corporation has not filed yet as you were unaware of the filing requirements, the penalties may be waived if the information return is submitted under the Voluntary Disclosure Program.

Angela Hardbattle, Dipl. T (Hons), CPA, CA, Manager

Manager, Gilmour Group CPA’s
Email: faqs@gilmour.ca

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