May 28th, 2020
Jul 11th, 2013
By Steven Sitcoff
Canadian taxpayers are generally required to report to the CRA, on form T1135, their ownership of certain foreign property with a total cost amount in excess of $100,000 in the aggregate. This obligation extends to foreign funds and shares even if held through a Canadian brokerage account but excludes property used in carrying on an active business, a share of a foreign affiliate, and personal use property (e.g. a vacation home used primarily as a personal residence rather than as a rental property).
The 2013 federal budget proposed a number of related changes in this regard, in particular (i) a three-year extension of the reassessment period if a taxpayer has failed to report income from a foreign property on their tax return and if form T1135 was either not filed, late-filed or included incorrect information, and (ii) a revision to form T1135 to require the inclusion of a greater level of detail than was previously required.
The prior version of form T1135 included information such as the countries and amounts involved as well as the nature of the foreign property but in an aggregated format. The revised form, issued on June 25, 2013 and effective as of the 2013 taxation year, requires that details be provided on a property-by-property basis, including the name of the specific foreign institution or other entity holding funds outside Canada, the specific country to which the property relates and the income generated from the particular foreign property. As such, the revised form more closely resembles the FBAR reporting requirements introduced in the US and will in many cases be far more time consuming to complete. However, it should be noted that foreign property in respect of which a T3 or T5 form has been received from a Canadian issuer is now expressly excluded from the revised form T1135, although it would still have to be prepared with the appropriate box checked to reflect that the exclusion applies.
One should be mindful of the potentially harsh penalties applicable in respect of T1135 forms for failure to file and late-filing (generally up to $2,500 per year), and also for false statements or omissions (the greater of $24,000 or 5% of the cost amount of the property per year). The latter is of particular concern given the greater scope of detail sought in the revised form, as the potential for error (whether material or minor) is increased significantly. It remains to be seen whether the CRA will take a heavy-handed approach to penalize inadvertent errors. Accordingly, in many cases it may be prudent to apply for a voluntary disclosure in order to correct any such errors without the threat of penalty.
Steven Sitcoff is a tax lawyer at Spiegel Sohmer who has experience with a variety of corporate and personal income tax matters, including voluntary disclosures to the federal and provincial tax authorities.