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Foreign Asset Reporting Comes On-Stream

Canadian residents have always been required to report and pay tax on world wide income. However, extra reporting requirements exist in response to CRA's perception that many Canadian residents are avoiding or evading Canadian tax by utilizing non-resident corporations and non-resident trusts, and by acquiring foreign income producing assets and thereby not reporting the income.

The government has simplified the process by creating the ‘check-the-box Form T1135 "Foreign Income Verification. Information to be disclosed includes the type of property, the location and the amount of income.

The requirements to file an information return apply in four situations:

• Individuals, corporations, trusts and partnerships which own "specified foreign property" (see below), the total cost of which exceeds $100,000.
• Canadian residents who transfer or loan property to a non-resident trust or a corporation which is a controlled foreign affiliate of a trust
• Canadian residents who own an interest in a foreign affiliate and
• Canadian residents who receive a distribution of property from or become indebted to a non-resident inter-vivos trust.

Specified foreign property includes, but is not limited to:

• Non-Canadian funds, excluding funds invested in registered pension plans, and bank accounts;
• Tangible property situated outside Canada that is not considered personal use property;
• Shares of a non-resident corporation; and
• Indebtedness owed by a nonresident person.

Note that foreign property used exclusively in the course of carrying on an active business is excluded. Recreational property is also excluded.

The filing deadline for an individual is the personal filing deadline of April 30th while a partnership, corporations and trust must file by its normal tax filing deadlines.

The total minimum penalty for failure to file a return is $12,000 ($500 per month for 24 months). An additional penalty for failure to file for more than 24 months or for intentionally filing false information is based on 5% of the total cost of the foreign property.

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