The shares of NRco are held by Cansub, a wholly-owned subsidiary of (Canadian) Parent. Although Form T1135 states that taxpayers are not to include shares and indebtedness of a “foreign affiliate,” the definition of a foreign affiliate by virtue of s. 233.4 is narrower than in s. 95(1), so that (by virtue of s. 233.4(2)(a) as it applies pursuant to para. (k) of the “specified foreign property” definition in s. 233.3(1)) NRco is not a foreign affiliate of Parent for T1135 reporting purposes. Would CRA pursue Parent for penalties if it did not report a loan owing to it by NRco?
After referring to the Ministerial discretion accorded by s. 220(3.1), CRA indicated that applications for cancellation of interest or penalties for taxpayers that were misled by the T1135 wording would be entertained by CRA and that it also encouraged taxpayers to voluntarily correct past filing errors through submitting adjustments or applying under the voluntary disclosure program.
In the final version of its response, CRA added the statement:
At this time, the CRA is in the process of consulting internal stakeholders to evaluate and potentially develop a position on this issue, while giving consideration to the impacts on other foreign reporting forms