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Foreign accrual property income (FAPI) is a term used in Canadian tax law to refer to certain types of passive income earned by a Canadian corporation from foreign investments. Here are the basic steps involved in calculating FAPI:
Determine if the Canadian corporation has a foreign affiliate: A foreign affiliate is a corporation in which the Canadian corporation holds a significant level of control or ownership. If the Canadian corporation has a foreign affiliate, the FAPI rules may apply.
Classify the income: Identify the types of income earned by the foreign affiliate. FAPI includes income from property, such as interest, dividends, rents, royalties, and certain types of gains.
Calculate the foreign accrual property income: The calculation of FAPI involves determining the foreign affiliate's income that falls into specific FAPI categories. These categories include income from property that is not active business income or income from certain business activities that are considered "specified investment business."
Include income from controlled foreign affiliates: If the Canadian corporation has controlled foreign affiliates, their income may also be included in the FAPI calculation. Controlled foreign affiliates are foreign affiliates in which the Canadian corporation has a significant level of control or ownership.
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