Foreign Affiliates and Their Taxation

This advanced module provides CPA professionals with a comprehensive framework for understanding the taxation of foreign affiliates (FAs) and controlled foreign affiliates (CFAs) under Canadian tax law. Participants will explore the statutory definitions under subsections 95(1) and 251 of the Income Tax Act, analyze the mechanics of Foreign Accrual Property Income (FAPI) and Active Business Income (ABI), and learn how surplus accounts (exempt, taxable, hybrid, and pre-acquisition) interact with dividend distributions under sections 113 and 90. The module examines the strategic implications of the surplus system, foreign accrual tax deductibility, and the application of carve-outs under 95(2). It further addresses anti-avoidance provisions, including subsection 95(6), the general anti-avoidance rule (GAAR), and surplus manipulation risks. Through discussion of T1134 compliance obligations, reporting triggers, and CRA enforcement patterns, CPAs will gain the tools to navigate audit risks and plan effectively for cross-border structures. By the end, professionals will be equipped to integrate surplus management, FAPI minimization strategies, and OECD-aligned anti-hybrid rules into robust international tax plans for Canadian taxpayers with global operations.