US Citizens and US residents who own more than 10% of the shares of a foreign company (here, Canada) or the officers and directors of such a company have an obligation to annually file a Form 5471, Information Return of US Persons With Respect to Certain Foreign Corporations in order to report certain information about this foreign corporation. Depending on the percentage of shares held, the sections to be completed on the form may differ. In addition, since 2019, new sections have been added to make room for the Global Intangible Low-Taxed Income (GILTI), a measure introduced by the Tax Cuts and Jobs Act reform making the form more complex.

Information to be provided

In addition to providing information on shareholders, annual financial statements of the company will be required to analyze the source of income earned by the foreign company. In order to prevent its US citizens and residents from deferring a tax payment, the US tax authorities (IRS) use the concepts of GILTI and Subpart F to force them to include additional income on their own US tax return. However, exceptions are available so that no income is to be included or a foreign tax credit is used to mitigate the negative effects of these concepts.

Applicable penalties

A statutory penalty of $10,000 US  (per omission) may apply if Form 5471 is not completed on time. In addition, if the Internal Revenue Service (IRS) informs you that Form 5471 is missing, a period of 90 days is allowed to provide said form, in which case an additional penalty could be applied (up to a maximum of $50,000 US).

Other forms

As a US citizen, other forms may apply to you depending on your situation. This will be the case in particular if you have a TFSA or if you hold mutual funds. Finally, you will normally be required to file the Report of Foreign Bank and Financial Accounts (FBAR) and Form 8938, Statement of Specified Foreign Financial Assets forms if you exceed certain thresholds.

Do not hesitate to make an appointment with one of our tax experts or to drop your file on our virtual platform, it will be our pleasure to assist you in the preparation of Form 5471. Being specialized in US tax, we are used to processing these forms.

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About the author

Olivier Custeau, tax expert, B.A.A., M. Fisc., EA

Holder of a bachelor's degree in business administration (B.B.A) from Université Laval and a master's degree in taxation (M. Fisc.) from the Université de Sherbrooke, Olivier has developed expertise in American and international taxation by working in a renowned firm. Over the years, he has developed a keen interest in US taxation. In fact, he was awarded Enrolled Agent status in 2019, the highest level a professional can attain to represent clients to the Internal Revenue Service (IRS). Recognized for his rigorous, dynamic and human approach, Olivier is an asset to the team.