FAPI

At UHY Victor, we have expertise helping Canadians with Foreign Accrual Property Income (FAPI).

 

What is FAPI? 

FAPI is the Foreign Accrual Property Income in the Income tax act. FAPI is only applicable on passive income and capital gains taxpayers owning a foreign corporation. The idea behind FAPI is to prevent residents from deferring current taxation on investment income and capital gains by using foreign corporations.

Any non Canadian resident investing in income earned is controlled by a (CFA) a foreign affiliate. The CRA credits all interest income to the Canadian resident as it earned directly. It does not include income from an active business. Only applied to income from (property, rentals, royalties, investment income or taxable gains). Some income and property taxes are excluded from FAPI. If the passive income is being earned in a country that has a tax treaty with Canada, then taxpayers would receive tax credits in the amount already paid in the other country.

Typically the Canadian-resident taxpayer receives foreign tax credits for the tax paid in the other country.

How is it Calculated?

FAPI can never be a negative amount. The year is calculated by adding up all amounts qualifying as FAPI, less any foreign accrual property losses, allowable capital losses, and foreign accrual capital losses for the previous twenty years and the following three years.

A foreign corporation owned by a Canadian-resident with net losses are not available to offset income from other sources. The losses of one foreign corporation cannot be used to offset the FAPI of another.

 

Forms to take in consideration:

  • Form T1134  Foreign affiliates ( Due within 15 months after the end of the taxation year.)
  • Form T106 Non-arm’s Length Transaction with Non-residents (The person resident must file the T106 form if the total of reported transactions for all non-residents exceeds $1000 000)
  • Form T1135  Foreign Property  (in Canada you must report all foreign property details when exceeding the amount the amount of $100 000 in any time of the taxation year)
  • Form T2 return (dealing with investment in foreign affiliates).

Need Help ? 

If you have failed to report or filing any foreign documents to the CRA, we can help you to correct the error with the government Voluntary Disclosure program.

 For more detailed information Contact us a for a free consultation regarding your FAPI issues:

UHY Victor Canada U.S. Tax Team

crossbordertax@uhyvictor.com
(514) 282-1836 x275