T1134 and T106 Foreign Reporting Penalty Calculator
These penalties are charged per form, per affiliate, per year, and they apply whether or not any tax is owing. Work out what is accruing across every outstanding year, what a knowing failure costs instead, and where the transfer pricing exposure sits.
penalties across all forms
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How the T1134 Penalty Multiplies
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T106 and the Filing Requirement
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Transfer Pricing Exposure
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Points That Decide This
What to Do Next
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Disclaimer: Form T1134 must be filed by a reporting entity in respect of each foreign affiliate, within ten months of the end of the taxpayer’s taxation year for taxation years beginning after 2020. Form T106 must be filed by a reporting person or partnership that has reportable transactions with non-arm’s length non-residents where the total of those transactions exceeds CAD 1,000,000 for the year, and is due on the date the income tax return is due. The basic penalty for failing to file either form is imposed under subsection 162(7) of the Income Tax Act at $25 for each day of default, with a minimum of $100 and a maximum of $2,500, and applies separately in respect of each form and each foreign affiliate. Subsection 162(10) imposes a substantially larger penalty where the failure is made knowingly or in circumstances amounting to gross negligence, calculated at a monthly rate for up to twenty-four months, with a higher monthly rate where the Minister has served a demand to file; subsection 162(10.1) imposes further penalties where the failure continues beyond twenty-four months. Subsection 247(3) imposes a transfer pricing penalty of 10% of certain adjustments where the total of those adjustments exceeds the lesser of $5,000,000 and 10% of the taxpayer’s gross revenue for the year, unless the taxpayer made reasonable efforts to determine and use arm’s length prices, which generally requires contemporaneous documentation prepared by the return filing deadline. The penalty amounts, thresholds and monthly rates used in this calculator should be confirmed against the current legislation and Canada Revenue Agency guidance before being relied on. Relief from penalties and interest is discretionary and is generally sought under the taxpayer relief provisions or through the Voluntary Disclosures Program, which is normally available only before the CRA has made contact regarding the issue. This page is general information, not tax advice.
The Multiplication Is the Problem
Taken on its own the penalty looks minor. Twenty-five dollars a day, capped at twenty-five hundred, is not a number that frightens anyone. What makes foreign reporting different is that the cap applies per form, per affiliate, per year.
Three affiliates across three outstanding years is nine separate T1134 penalties, not one. Add the T106 for each of those years and the total climbs past twenty thousand dollars on a corporation that may owe no tax at all.
These penalties do not depend on tax being owed. A dormant foreign affiliate with no income, no distributions and no activity still has to be reported, and the penalty for not reporting it is identical to the penalty for a profitable one. That is the part owners find hardest to accept and the part that is least negotiable.
Two Forms, Two Triggers
| Form | Who Files | Deadline | Applies Per |
|---|---|---|---|
| T1134 | Reporting entity with a foreign affiliate | 10 months after year end | Each affiliate |
| T106 | Non-arm’s length transactions with non-residents above the threshold | With the income tax return | Each year |
They catch different things and a corporation can easily owe both. A Canadian company with a US subsidiary that it also trades with files a T1134 for the subsidiary and a T106 for the transactions, on two different deadlines.
The T1134 deadline moved. It used to sit at fifteen months after the year end and now sits at ten for taxation years beginning after 2020. Advisers working from an older timetable have filed late without realising the date changed, which is one of the more common causes of an unexpected penalty.
Knowing Failure Is a Different Regime
Where a failure to file is made knowingly or in circumstances amounting to gross negligence, the basic daily penalty is replaced by a monthly one that runs for up to twenty-four months, and the monthly rate doubles once the CRA has served a demand to file.
The gap between the two regimes is large. A capped basic penalty per affiliate per year becomes several times that where the higher provision applies, and beyond twenty-four months further penalties can be added on top.
| Circumstance | Regime | Scale |
|---|---|---|
| Oversight, no demand served | Basic daily penalty | Capped per affiliate per year |
| Knowing or grossly negligent | Monthly penalty for up to 24 months | Several times the basic |
| Demand served and still not filed | Higher monthly rate | Double again |
| Failure continuing beyond 24 months | Further penalties available | Additional exposure |
Whether a failure was knowing is a question of fact and not one to concede lightly. An owner who genuinely did not know the form existed is in a very different position from one who was advised and did nothing, and the distinction is worth taking advice on before anything is said to the CRA.
Transfer Pricing Sits on Top
The T106 reports the transactions. Whether they were priced at arm’s length is a separate question with its own penalty, and that one is proportional rather than capped.
Where a transfer pricing adjustment exceeds the lesser of five million dollars and ten per cent of gross revenue, a penalty of ten per cent of the adjustment applies, unless the taxpayer made reasonable efforts to determine and use arm’s length prices. Contemporaneous documentation is what demonstrates those efforts.
Documentation prepared after the fact does not qualify. It has to exist by the filing deadline for the year in question, which means a corporation that starts writing it when the audit letter arrives has already lost the defence. That single point is worth more than every filing penalty on this page for any group with significant intercompany flows.
The Threshold Catches Smaller Companies Than People Expect
The transfer pricing penalty threshold is the lesser of five million dollars and ten per cent of gross revenue. On a company with six million of revenue, that is six hundred thousand, not five million.
So a mid-sized business with a modest intercompany arrangement can cross the line on an adjustment that a larger company would absorb without penalty. The smaller the revenue, the lower the bar.
Voluntary Disclosure Before Contact
The Voluntary Disclosures Program can provide relief from penalties on unfiled foreign reporting, but it is normally available only before the CRA has made contact about the issue. Once a demand or an audit letter arrives, that door is generally closed.
That makes the order of operations important. Quantify the exposure, decide on the route, and file through the appropriate channel rather than simply submitting the back forms and hoping. Filing them cold can remove the option that would have helped most.
What Usually Goes Wrong
- Nobody knew the form existed, particularly where the foreign entity was set up by a foreign adviser
- The affiliate is dormant, so the owner assumed there was nothing to report
- The ten-month deadline was diarised at the old fifteen months
- The ownership threshold was misread, and a holding treated as too small to report was not
- The T106 threshold was measured on profit rather than on the total of transactions
- Documentation was never prepared because the intercompany amounts looked reasonable to everyone involved
What This Calculator Does Not Cover
- Whether an entity is a foreign affiliate or a controlled foreign affiliate, which has its own tests
- FAPI income inclusions, which are a separate calculation from the reporting penalty
- Form T1135 for specified foreign property, which has its own regime
- The upstream loan rules and other provisions that often apply to the same structures
- Country-by-country reporting for larger multinational groups
- Whether a failure was knowing, which is a question of fact and of advice
If several years are outstanding, the route matters more than the arithmetic. Our international tax planning and structuring service covers the affiliate analysis, the back filings, the disclosure route and the transfer pricing documentation.
Frequently Asked Questions
Common questions on late foreign reporting forms.
Related Calculators and Guides
More tools for Canadian corporations with foreign structures.
Decide the Route Before You File Anything
Send us the ownership chart, the year ends and the intercompany transaction totals. We will identify which forms were required for which years, quantify the penalties, advise on the disclosure route and prepare the filings and the transfer pricing documentation.