Canadian residents have always been required to report and pay tax on world-wide income. For several years, Canadian residents have had extra reporting requirements 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 simplified the process by creating Form T1135 “Foreign Income Verification.” This used to be a “check the box” type form, however, in 2013 the reporting requirements on the form increased substantially.
Information to be disclosed may include the type of property, the location, the amount of income, the maximum cost and/or FMV during the year, the cost and/or FMV amount at year end, and the gain (loss) on disposition.
Form T1135 must be filed by Canadian resident individuals, corporations, trusts and partnerships which own “specified foreign property” (see below), the total cost of which exceeds $100,000.
Specified foreign property includes:
- Non-Canadian funds or intangible property (patents, copyrights etc), excluding funds invested in registered pension plans;
- Tangible property situated outside Canada that is not considered personal use property;
- Shares of a non-resident corporation or shares of corporations resident in Canada, but held outside Canada
- an interest in a non-resident trust that was acquired for consideration;
- an interest in a partnership that holds a specified foreign property unless the partnership is required to file form T1135;
- a property that is convertible into, exchangeable for, or confers a right to acquire a property that is specified foreign property;
- a debt owed by a non-resident, including government and corporate bonds, debentures, mortgages, and notes receivable;
- an interest in a foreign insurance policy; and
- precious metals, gold certificates, and futures contracts held outside Canada.
Note that foreign property used exclusively in the course of carrying on an active business is excluded. Recreational property is also excluded.
Also excluded is:
- a share of the capital stock or indebtedness of a foreign affiliate;
- an interest in certain exempt trusts;
- an interest in, or a right to acquire, any of the above-noted excluded foreign property.
New for 2014 tax years and later, if a taxpayer holds the specified foreign property through a Canadian broker, they are permitted to report the aggregate value of all such property, but on a country by country basis, in a newly created Part 7 of the form. This is simpler, more efficient, method of reporting as compared to prior years, where each property had to be itemized.
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.
Individual taxpayers are permitted to file the form electronically effective for the 2014 tax year. Partnerships, corporations and trusts must still paper-file the return until further notice.
The minimum penalty for failing to file is $100 to a maximum of $2,500. When failing to file is done knowingly or is considered gross negligence, the penalty is a maximum $12,000 ($500 per month for up to 24 months). After 24 months, the penalty is 5% of the total cost of the foreign property.
Updated April 2015