Principal Issues: 1. Based on the definition provided in subsection 251(4) of the Income Tax Act (“the Act”), a ''related group'' is a group of persons but a partnership is not always a person for the purpose of the Act. However, it is included in part I – section 3 – iv), Partnership, of form T1134. Can the CRA clarify its position as to when a partnership should be included in a group of reporting entities that are related to each other? 2. The instructions provided under part II, section 1, C., Other information of foreign affiliate, for form T1134 indicate that ''for the purposes of completing this return, gross indebtedness does not include set-offs or trade accounts payable”; can the CRA confirm that this is also the case for part II, section 3, A.4 of the form, and therefore that a trade accounts payable does not need to be reported as a loan from a foreign affiliate under part II, section 3, A.4?
Position: 1. A ''group of reporting entities that are related to each other'' can include a partnership in certain cases. 2. No, these instructions are not applicable to part II, section 3, A.4.
Reasons: 1. If a partnership is considered a reporting entity, the administrative position relating to reporting entities that are members of a related group would be extended to partnerships if at least one of the partners is related to every other reporting entity forming the related group. 2. Subsection 90(6) of the Act does not generally apply to trade accounts payable provided that all of the conditions in the exception in paragraph 90(8)(b) of the Act are met. However, a trade accounts payable is still a debt. Therefore, the answer to the first question in part II, section 3, A.4 (4.1) would be “yes”, considering that the trade payable is an amount that the reporting entity owes to a foreign affiliate. If all of the conditions in the exception under paragraph 90(8)(b) of the Act are met, the answer to the second question would be ‘’no’’, considering that subsection 90(6) of the Act would not apply. The answer to the third question would be “yes”, to the extent that the trade payables meet all of the conditions for the exception under paragraph 90(8)(b) of the Act.
APFF FEDERAL TAX ROUNDTABLE 10 OCTOBER 2024
2024 APFF CONFERENCE
5. Treatment of partnerships and trade payables on T1134
Situation 1
The instructions for the T1134 information return indicate that in order to benefit from the administrative relief for groups of reporting entities, the filers must be members of a related group, as defined in subsection 251(4). The definition of “related group” in subsection 251(4) specifies that a related group means “a group of persons each member of which is related to every other member of the group.”
A partnership may be a filer under paragraph 233.4(1)(c), but it is not necessarily a person for the purposes of the Income Tax Act.
Question to the CRA
Can the CRA indicate how to determine whether a partnership is part of a related group for purposes of the administrative relief for groups of reporting entities, to the extent that it would not be a person for purposes of the definition of “related group” in subsection 251(4)?
CRA Response
For taxation years commencing after 2020, the CRA allows filers that are members of the same related filing group to file a single T1134 information return for all foreign affiliates for which the members of the related group would otherwise have been required to file T1134 information returns.
As stated in the instructions for the T1134 information return, to be part of a group of related filers, the filers must be part of the same related group, as that term is defined in subsection 251(4), have the same fiscal period end and use the same Canadian currency or functional currency.
A partnership described in paragraph 233.4(1)(c) is a reporting entity for the purposes of section 233.4 as soon as a partner who is resident in Canada and who is not exempt from Part I tax has an interest of at least 10% in the income or losses of the partnership for the fiscal period. Indeed, a partnership is a reporting entity if the total of all amounts each representing the share of the income or loss for the fiscal period of a partner who is not resident in Canada or who is a fully exempt taxpayer is less than 90% of the income or loss of the partnership for the fiscal period.
If a partnership is a reporting entity in respect of a foreign affiliate, the administrative relief for related reporting groups extends to the partnership if at least one of its members (or if another partnership is a member, one of its members) is related to each of the other reporting entities forming a related group in respect of that same foreign affiliate. If there is any doubt about a partnership, the reporting entity would be well advised to include it in the T1134 information return for the group of related reporting entities to ensure that the partnership's reporting obligations are met and the CRA will recognize them as such.
Situation 2
The instructions for the T1134 information return relating to Subsection C of Section 1 of Part II (other information) indicate that “For the purposes of completing this return, gross indebtedness does not include set-offs or trade accounts payable.”
Question to the CRA
Can the CRA confirm that this position also applies to Table 4 in Subsection A of Section 3 of Part II, i.e., the existence of an accounts payable balance is not an upstream loan to be reported there?
CRA Response
A reporting entity must complete, for each of its foreign affiliates, Table 4 “Upstream Loan Rules” in Subsection A of Section 3 of Part II of the supplement filed for the particular foreign affiliate.
In this table, the reporting entity must indicate in Question 4.1 whether a specified debtor in respect of the reporting entity or any member of the related Canadian group owes an amount to the foreign affiliate or a partnership of which the foreign affiliate was a member. Note that this table does not refer to “gross indebtedness”.
The instructions in Section 1 to Section 3 of Part II of the T1134 information return are not applicable to Table 4 of Subdivision A of Section 3 of Part II. Subsection 90(6) refers to a loan or indebtedness. Since an accounts payable is a debt, the answer to question 4.1 of Table 4 of Subsection A of Section 3 of Part II would be “yes” since it is an amount that the reporting taxpayer owes to the foreign affiliate. If all the conditions of the exception to paragraph 90(8)(b) are satisfied, the answer to the second question would be “no” because subsection 90(6) would not apply to that debt. Similarly, the answer to the third question would be “yes” insofar as the conditions in paragraph 90(8)(b) are satisfied.
Isabelle Sauvé
October 10, 2024
Answer prepared in collaboration with :
Darren Poiré, Senior Technical Specialist
Compliance Programs Branch
International Technical Issues Section
Amélie Guimont, Senior Technical Specialist
Compliance Programs Branch
International Technical Issues Section