Canadian taxpayers – individuals, corporations and trusts – are required to report all ‘specified foreign property’ owned to the CRA, if at any time during the year the total cost exceeded $100,000. This reporting is done through filling out Form T1135 (Foreign Income Verification Statement).
Taxation years ending after June 30, 2013
A revised version of the form was issued by the CRA and was applicable to taxation years ending after June 30, 2013. The revised form required several new disclosures.
Reporting for 2014 and later taxation years
The CRA issued yet another revised form and is applicable to 2014 and later taxation years. The revised form still requires several new disclosures.
What property must be reported?
The type of property that must be reported for those who are required to file has not changed. Specified foreign property includes:
1. Funds held outside Canada;
2. Shares of non-resident corporations (other than foreign affiliates);
3. Indebtedness owed by non-residents;
4. Interests in certain non-resident trusts;
5. Real property situates outside Canada (other than personal use property and real property used in active business); and
Other types of foreign property (such as intangible property) not used in a business and with certain rights under contract.
What information was reported on the old form?
The previous version of Form T1135 was quite simple, requiring only the disclosure of:
1. Range for the cost base of the property categories;
2. Total income earned in the year from all property; and
3. Geographic region in which the property was held.
What needs to be reported on the revised form?
The revised Form T1135 is more exhaustive, requiring disclosure of:
1. Description of each property;
2. Country in which it is held;
3 .Maximum cost base of each property during the year;
4. Cost base of each property at the end of the year;
5. Income or loss from each property; and
6. Any realized capital gain/loss from each asset.
T3/T5 reporting exception for taxation years ending after June 30, 2013
For taxation years ending after June 30, 2013, the form was very easy to complete. If all foreign investment properties owned had income that was reported on a T3/T5 then the CRA permitted taxpayers to file under the T3/T5 reporting exception. This meant that taxpayers simply had to check a box indicating that they were filing under this option. However, if any of the properties didn’t have income during the year, then this simplified reporting method was not an option. Detailed reporting was required for those properties.
Even if this reporting exclusion applied to the taxpayer’s situation, they still had to file Form T1135.
T3/T5 reporting exception for 2014 and later taxation years
The reporting exception discussed above that excluded certain property from the detailed reporting requirement where the taxpayer has received a T3/T5 from a Canadian issuer has been eliminated.
Transitional relief for taxation years ending after June 30, 2013
In response to the concerns of several taxpayers regarding the significant change in reporting requirements, the CRA provided transitional relief for the 2013 taxation year only. This applied to taxpayers with property in an account with a Canadian registered securities dealer. These taxpayers were allowed to report the combined value of all property at the end of the year, rather than a breakdown of each property.This relief did not apply to taxpayers who held property with a registered securities dealer outside Canada. For these taxpayers, their only option was to report the specific details on an investment by investment basis.
Transitional relief for 2014 and later taxation years
The transitional relief discussed above has been extended with some modifications. More specifically, taxpayers who held property in an account with a Canadian registered securities dealer or a Canadian trust company are permitted to report the aggregate value of all such property on a country by country basis.
The aggregate reporting is to be reported on a new table within Form T1135 – Category 7, Property held in an account with a Canadian registered securities dealer or a Canadian trust company.
The disclosure will include:
1. Highest fair market value at the end of any month during the year;
2. Fair market value at year-end;
3. Aggregate income (loss) earned during the year; and
4. Gain (loss) realized from all dispositions during the year.
What are the implications of not reporting?
There may be significant financial consequences to not filing the T1135 by the required due date. The penalty for a failure to comply is $25 per day for up to 100 days (minimum $100 and maximum $2,500). The penalty may be $1,000 per month to a maximum of $24,000 in the cases of gross negligence.