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What Is CRA Form T106?
Canadian taxpayers who engage in cross-border dealings with related non-residents face special reporting requirements. One of the most important filings in this area is CRA Form T106, Information Return of Non-Arm's Length Transactions with Non-Residents.
The T106 form ensures that the Canada Revenue Agency (CRA) receives detailed information about transactions between Canadian residents and non-arm's length non-residents, including foreign affiliates, related corporations, family members abroad, or other non-residents with a special relationship.
The form is not a tax return—it does not determine taxes payable. Instead, it allows the CRA to assess whether Canadian taxpayers are correctly reporting income and whether transactions comply with Canada's transfer pricing rules under section 247 of the Income Tax Act.
When Is T106 Filing Required?
You must file a T106 if, at any point in a tax year, you have entered into reportable transactions with a non-arm's length non-resident, provided that the total value of all such transactions exceeds $1 million Canadian dollars for the year.
Reportable transactions include, but are not limited to:
- Sale or purchase of goods
- Provision of services
- Lending or borrowing of money
- Use of intangible property, such as patents, trademarks, or goodwill
- Management fees or other charges
The CRA requires these disclosures because related-party cross-border transactions can shift income outside Canada if not properly priced at arm's length.
Who Must File?
The filing obligation applies to:
- Individuals resident in Canada who transact with related non-residents
- Corporations resident in Canada with non-arm's length non-resident dealings
- Partnerships with cross-border related-party transactions
- Trusts that conduct business with related non-residents
Each entity must file its own T106 form, and the responsibility cannot be transferred.
What Information Is Reported on T106?
The T106 requires taxpayers to provide:
- Identification of the non-resident party (name, address, country of residence, relationship)
- A breakdown of reportable transactions, categorized by type (sales, loans, rents, royalties, etc.)
- Balances outstanding at year-end for loans or advances
- Transfer pricing methods used to determine the terms of the transaction
- Financial information from the Canadian taxpayer and its foreign affiliate
This level of detail allows the CRA to cross-check taxpayer filings with international information exchange agreements and target tax audits where pricing appears inconsistent with market standards.
Example: How T106 Works
Suppose a Canadian company, MapleTech Inc., has a wholly owned subsidiary in Ireland. In 2024, MapleTech sells computer software licenses to the Irish affiliate for CAD $3 million. It also loans the affiliate CAD $500,000.
Because the total value of non-arm's length cross-border transactions exceeds CAD $1 million, MapleTech is required to file a T106 for the 2024 taxation year. The form must disclose both the sales and the loan, including interest charged, repayment terms, and the transfer pricing method used to set the license fees.
Failure to file could trigger significant penalties.
Penalties for Non-Compliance
The CRA imposes steep penalties for failing to file a required T106:
- $25 per day, up to a maximum of $2,500 per year for each missed form.
- Additional penalties may apply if the failure is deliberate, repeated, or part of gross negligence.
- Non-filing may also increase audit risk, exposing taxpayers to potential transfer pricing adjustments, which can result in double taxation if not resolved through treaty mechanisms.
Taxpayers who realize they have missed filing a T106 may be eligible to apply under the CRA's Voluntary Disclosures Program (VDP). The VDP provides a way to correct past non-compliance by coming forward before the CRA initiates enforcement action. If accepted, applicants may avoid penalties and, in some cases, prosecution, although they must still pay any taxes owing plus interest.
How CRA Uses the T106
The CRA relies on T106 information to:
- Detect potential transfer pricing abuses
- Cross-check data against other international tax filings
- Target multinational groups for audit where transactions deviate from market norms
- Ensure that income is properly reported in Canada
In recent years, CRA has invested heavily in transfer pricing audit teams, making the T106 form a key compliance tool.
Pro Tax Tips
- Track transactions carefully: Keep detailed records of all cross-border dealings with non-arm's length non-residents throughout the year.
- Prepare transfer pricing documentation: Even if not filed with the T106, robust documentation helps defend against CRA challenges.
- File on time: The T106 is due on the same date as your income tax return. Late filing exposes you to automatic penalties.
- Don't ignore small loans or service fees: Even relatively minor transactions must be included if the overall threshold of $1 million is met.
- Use the Voluntary Disclosures Program if needed: If you missed a past T106 filing, the VDP offers a path to compliance while reducing penalties.
- Seek professional advice: Transfer pricing rules are complex. Consulting with an experienced Canadian tax lawyer can help mitigate risks.
Comparing Canadian T106 with U.S. Reporting Obligations
Canadian taxpayers who deal with non-arm's length non-residents must be familiar with CRA Form T106, which consolidates cross-border related-party transactions into a single disclosure. In contrast, U.S. taxpayers face a fragmented system of international reporting, requiring several different forms depending on entity type, ownership structure, and transaction type.
Understanding the differences between Canada and the United States is critical for businesses with cross-border operations. Filing obligations are not interchangeable, and penalties for non-compliance in either jurisdiction can be severe. The comparison below highlights the key similarities and differences between Canada's T106 Information Return of Non-Arm's Length Transactions with Non-Residents and the closest U.S. equivalents, including Form 5471, Form 5472, and Form 8865.
| Feature | Canada: CRA Form T106 | United States: Closest Equivalents |
|---|---|---|
| Purpose | Discloses non-arm's length cross-border transactions with non-residents. | Ensures U.S. taxpayers disclose ownership and transactions with foreign corporations, partnerships, or related parties. |
| Threshold for Filing | Required if the total value of transactions with non-arm's length non-residents exceeds CAD $1 million in a taxation year. | Ownership or control thresholds
vary: – Form 5471: U.S. person with certain ownership in a foreign corporation (as low as 10%). – Form 5472: U.S. corporation 25%+ foreign-owned with related-party transactions. – Form 8865: U.S. person with certain ownership in a foreign partnership. |
| Who Must File | Individuals, corporations, trusts, and partnerships resident in Canada with related non-resident dealings. | U.S. persons or entities meeting ownership/control tests in foreign corporations, partnerships, or foreign-owned U.S. corporations. |
| Transactions Reported | Goods, services, loans, royalties, rents, interest, management fees, use of intangibles. | Reportable related-party
transactions vary by form: – Form 5471: Ownership, financials, transactions. – Form 5472: Sales, loans, services, intangibles, and other dealings with foreign related parties. – Form 8865: Partnership contributions, distributions, related-party dealings. |
| Penalties for Non-Compliance | $25 per day, up to $2,500 per year per missed form. Larger penalties possible for gross negligence. | Significant penalties: – Form 5471: $10,000 per year, per form, plus continuation penalties. – Form 5472: $25,000 per year, escalating monthly if noncompliance continues. – Form 8865: $10,000 per year, per form, with continuation penalties. |
| Voluntary Disclosure Option | CRA Voluntary Disclosures Program (VDP) allows correction of past non-compliance, with potential relief from penalties if disclosure is voluntary and complete. | IRS has voluntary disclosure and streamlined compliance programs for unfiled international forms, though penalty relief is more limited and depends on circumstances. |
| Centralization vs. Fragmentation | One form (T106) consolidates all cross-border related-party transactions above the threshold. | No single form: multiple forms (5471, 5472, 8865, 8858) apply depending on entity type and ownership structure. |
Frequently Asked Questions
What is the purpose of Form T106?
The T106 is designed to provide the CRA with transparency into cross-border related-party transactions, ensuring compliance with transfer pricing rules.
Do I need to file T106 if my transactions are below $1
million?
No. The filing obligation only arises when the total value of
reportable transactions exceeds $1 million in a taxation year.
Does filing T106 affect how much tax I pay?
Not directly. T106 is an information return. However, CRA can use the information to challenge pricing and adjust taxable income.
What happens if I don't file T106?
Penalties of up to $2,500 per year per missed form apply, along with increased audit risk. In serious cases, larger penalties may be imposed.
Is T106 only for corporations?
No. Individuals, trusts, and partnerships must also file if they meet the criteria.
What if I forgot to file a T106 in a previous year?
You may apply under the CRA's Voluntary Disclosures Program to correct the oversight and potentially avoid penalties, though you will need to pay taxes and interest owing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
