T106 — meaning in cross-border tax

The T106 is Canada's information return for dealings with non-residents you are not at arm's length from: a parent, a subsidiary, a sister company, or an individual connected to you. It is filed by the Canadian reporting person, alongside the income tax return but as a separate obligation with its own rules. What triggers it is the relationship and the dealings, not whether the dealings were profitable. A company that made a loss, or that paid its parent a single charge and nothing else, can still be a filer. The practical test is to list every non-resident you transacted with, then ask for each one whether you dealt with them as strangers would.

A dealing recorded at nothing is still a dealing. If a related non-resident provided something, whether head office support, the use of a brand, a person's time or the use of money, and nothing was charged, then the reporting question and the pricing question come apart. The return is concerned with what passed between you; the pricing rules are concerned with what the price should have been. Leaving a nil charge off the return does not make it invisible, because the counterparty's own accounts and its home-country filings describe the same arrangement from the other side. Record the dealing, then be able to explain the price, including when the price was nothing.

No, and conflating them is the commonest mistake in this area. The return is a summary: who the related non-residents were, where they were resident, what categories of dealings took place and in what amounts. Documentation is the file behind those amounts, describing the functions each party performed, the method chosen for setting the price, and the evidence that the method produces an arm's-length result. The return can be completed in an afternoon from the trial balance. The documentation cannot, which is why the two are prepared at different times, and why a filed return with nothing behind it is a weaker position than it looks.

Treat it as a separate late filing rather than as an amendment to the tax return. It is an information return, so the exposure does not depend on tax being owed: penalties here attach per return and per year, which is how a company with losses throughout accumulates a real liability while paying nothing in tax. The sensible order of work is to establish which years had reportable dealings, prepare the missing returns for all of them, and decide how to bring them in, quietly on their own or through a disclosure route, before anything is sent. Filing one year in isolation draws attention to the years either side of it.

Money owed to or from a related non-resident is treated differently from a sale or a service charge, and the return keeps the two apart: amounts that ran through the income statement on one side, balances outstanding on the other. So a shareholder loan that generated no invoice and no interest is not outside the return simply because nothing appeared in revenue. The interest question follows separately, being whether any was charged, whether any should have been, and what was withheld if it was paid. Pull the intercompany accounts off the balance sheet, not only out of the sales ledger, before deciding what the return has to show.

Because it is the only document that puts the whole related-party picture on one page. Before opening a ledger, the return tells an examiner which non-residents you dealt with, which countries they sit in, what kinds of dealings took place and how large each was. From that alone it is possible to see where profit is likely to have moved and which single charge is worth a question. That is also why an internally inconsistent return is expensive: a figure that does not tie to the financial statements is not a small error on a form, it is the opening question of an examination you then have to answer from scratch.

Yes, and it lands harder on them. An individual US shareholder of a controlled foreign corporation has the same inclusion a corporate shareholder does, but without an election gets neither the corporate-level deduction nor credit for the foreign corporate tax already paid — so foreign profit can be taxed at individual rates with no relief for tax the company paid abroad. An election to be taxed as though through a domestic corporation is usually the first thing to model. See Form 5471 and CFCs.

None of it is tax-free for being foreign. A Canadian resident is taxed on worldwide income, so foreign salary, interest, dividends, rent and gains all go on the return, converted to Canadian dollars. What genuinely reduces the bill is the basic personal amount, the credit for foreign tax already paid, and any treaty article that exempts a specific type of income. The reporting thresholds people have in mind — the foreign property statement, for one — govern reporting, not exemption. See the foreign tax credit.