Foreign Income Verification Statement (T1135) Disclosure
Over the last several years the Canada Revenue Agency (CRA) has increased their focus on taxpayers with unreported income from foreign accounts and assets and those that have failed to properly report ownership of foreign accounts and assets, when required to do so, on Form T1135 – Foreign Income Verification Statement (or other information returns related to foreign property). The form T1135 has been through a few changes over the last several years. The most current version requires taxpayers to report detailed COST information (not market value) in CAD about their foreign accounts and assets, detailed market value information for foreign assets held in certain Canadian accounts and information about any income/losses in relation to these accounts and assets, and details in relation to any income generated from the property. There is currently a simplified procedure available for those who are required to file the form, but own assets which cost less than $250,000 CAD. Failing to file this form when required can result in large and punitive penalty assessments and an increase to the number of years that CRA may examine your tax returns.
ALL of the following must apply:
- The filer is a Canadian resident (individual, corporation, trust or certain partnerships) (year of immigration is excluded).
- The Canadian resident owns specified foreign property.
- The aggregate cost of all specified foreign property owned exceeds $100,000 CAD, in Canadian dollars, at any time during the tax year.
Examples of specified foreign property include but are not limited to:
- Funds or intangible property (patents, copyrights, etc.) held outside of Canada.
- Tangible property held outside of Canada.
- Shares of stock of a corporation not resident in Canada.
- Shares of Canadian corporations that are held outside of Canada.
- An interest in a non-resident trust.
- An interest in a partnership that owns specified foreign property (unless the partnership is required to file Form T1135).
- A property that can be converted/exchanged to or provides a right to acquire specified foreign property.
- A debt owed by a non-resident (includes government and corporate bonds, debentures, mortgages and notes receivable).
- An interest in a foreign insurance policy.
- Precious metals, gold certificates and futures contracts held outside Canada.
- A property used or held exclusively in carrying on an active business.
- A share of or indebtedness of a foreign affiliate.
- An interest in certain trusts considered exempt trusts as defined in paragraph (a) or (b) of subsection 233.2(1), such as certain employer-sponsored retirement plans, retirement and/or savings plans exempt from tax in the source country, etc.
- A personal-use property as defined in section 54 such as vacation homes, recreational properties, etc.
- An interest in or right to acquire any specified exempt foreign property.
If you are unsure if any property you own is considered “specified foreign property”, your AET tax specialist can assist.
Form T1135 must be filed by the date of the Canadian resident’s income tax return (information return for partnerships). Currently, the form can be e-filed or mailed, separately from any return(s), to:
- Winnipeg Taxation Centre
- Data Assessment & Evaluation Programs
- Validation & Verification Section
- Foreign Reporting Returns
- 66 Stapon Road
- Winnipeg MB R3C 3M2
Failure to File:
- $25/day, starting at $100 and up to $2,500 (100 days).
- Failure to file due to gross negligence – $500/month up to 24 months ($12,000) minus any penalties already levied.
- After 24 months – 5% of the cost of the specified foreign property which resulted in the requirement to file Form T1135 (minus any other failure to file penalties already levied).
False Statements or Omissions:
- The greater of $24,000 or 5% of the cost of the specified foreign property that the false statement or omission relates to.
There are options available if you were required to file Form T1135 but have not, as long as Canada Revenue has not yet requested the information. The Voluntary Disclosures Program (VDP) is available to taxpayers who want to voluntarily come forward to become compliant in their Canadian tax affairs. Details about VDP can be found at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-income-tax-overview.html. Ask your AET tax specialist how you can benefit from this program.
- Currency/monies – the name of the financial institution, country where located, highest amount during the tax year and amount on Dec 31 of the tax year.
- Shares in a non-Canadian corporation – name of the corporation, country where located, highest cost during the tax year, cost on Dec 31 of the tax year.
- Amounts owed to you by a non-resident of Canada – description of the indebtedness, country where located, maximum cost during the tax year, cost on Dec 31 of the tax year.
- Foreign trusts – name of trust, country where located, highest cost during the tax year, cost on Dec 31 of the tax year.
- Real property – description, country where located, highest cost during the year, cost on Dec 31 of the tax year.
- Other foreign property – description, country where located, highest cost during the tax year, cost on Dec 31 of the tax year.
- Property held in accounts with Canadian brokerages or trust companies (you receive T3s or T5s for these accounts) – name of brokerage/trust company, country where located, highest fair market value (FMV) during the tax year, FMV on Dec 31 of the tax year.
