Do I file Form T2 Schedule 25 even if no tax is owed?
Information return obligations of this kind are generally required on the facts rather than on the tax result, so a nil position does not remove one. Canadian corporations with foreign affiliates, filed with the corporate return.
What happens if I have missed Form T2 Schedule 25 for several years?
Missed years are dealt with as a package rather than one at a time, because the route chosen for the first year affects the relief available for the rest. We map the years and the obligations before anything is filed.
Is Form T2 Schedule 25 the same as the other reports I already file?
No. The corporate schedule identifying foreign affiliates and the Canadian corporation's interest in each. Satisfying a different obligation, even one covering the same accounts or entity, does nothing for this one.
Does a small overseas subsidiary count as a foreign affiliate?
Size is not the test, and that assumption is what catches groups out. What matters is the Canadian corporation's interest in the foreign company, including interests held indirectly through other companies, rather than how much the foreign company earns or whether it does anything at all. A dormant overseas holding company with no income can sit squarely within the reporting while a busy foreign customer does not. Work from the share register and the chain of ownership, not from the size of the operation, and do it before the corporate return is prepared.
We filed the schedule but not the affiliate return. Problem?
Yes, and it is the specific inconsistency the CRA sees immediately. The schedule identifies the affiliates; the fuller reporting describes them. Filing one without the other tells the CRA, in the corporation's own documents, that the obligation exists and has not been met. The reverse, detailed reporting with no schedule, reads the same way. Where this has already happened, dealing with it deliberately is better than waiting, because the gap is already visible and the correspondence tends to open with the very point you would rather have raised yourself.
Do dormant foreign subsidiaries still have to be listed?
Generally yes. The schedule identifies the affiliates and the corporation's interest in each; it is not a statement of what they earned. Groups regularly leave out the shelf company that has never traded, the entity kept alive for a licence, and the vehicle left over from a transaction that never completed, because none of them feel like operations. They are still holdings. Before a return is prepared, take the group's own organisation chart and tick each foreign entity off against the reporting, including the ones nobody thinks about.
How do we work out our interest in a foreign company?
By tracing the chain rather than reading the top of it. Interests held through intermediate companies count, which means a Canadian corporation can have a reportable interest in an entity several layers down that appears nowhere in its own share register. Partnerships and companies held jointly with other parties make the arithmetic harder again. The practical method is to build the ownership chart from the constitutional documents of each entity, not from what the group believes its structure to be, and then compute the interest at each level. The two versions differ more often than people expect.
We bought a foreign company mid-year. Does it get reported?
An interest acquired during the year is still an interest, and an acquisition is exactly the event that brings a group into this reporting for the first time. The trap is structural rather than technical: the acquisition is handled by one set of advisers and the corporate return by another, so the schedule is prepared from last year's structure and the new holding is simply not in anyone's list. Whoever buys, sells or restructures a foreign holding should tell whoever prepares the Canadian return in the same week, not at the year end.
What usually triggers CRA questions about foreign affiliates?
Inconsistency, more often than magnitude. The schedule that names an affiliate the rest of the package never mentions; detailed reporting for an entity absent from the schedule; a holding that appears one year, vanishes the next, and returns the year after with no disposal reported in between. These are all visible on the face of the documents, without anyone opening an audit. The defence is not secrecy but internal agreement: the corporate return, the schedule and the affiliate reporting should describe the same group in the same terms.
Should I use a branch or a subsidiary abroad?
A branch is the same legal entity operating in another country, so its profits and losses sit with the parent and it is taxed there as a permanent establishment. A subsidiary is a separate company, taxed in its own right, with dividends and withholding on the way home. Losses, repatriation cost and liability usually decide it, and the answer differs by country pair. See branch vs subsidiary.
Why are corporations double taxed?
Corporate double taxation happens because the company and its owners are separate taxpayers. The company pays tax on its profit; when the after-tax profit is distributed, the shareholder pays tax on the dividend. Canada softens this with the dividend gross-up and credit, which is meant to leave a shareholder roughly where they would have been earning the income directly. The United States taxes the C corporation and then the dividend, with no equivalent integration. See dividends to a foreign parent.
