Last year, the Canada Revenue Agency (CRA) drastically modified Form T1135: Foreign Income Verification Statement (Increased Foreign Property Reporting for Canadians) to improve the reporting of foreign assets worth CAD $100,000 or more as a step against tax evasion.
The changes brought about in this disclosure makes it more similar to the U.S. Internal Revenue Service’s (IRS) ‘Report of Foreign Bank and Financial Accounts’ (FBAR). It is likely going to increase the accounting fees incurred by taxpayers required to file the T1135 due to increased time necessary to satisfy the new requirements.
In our continuing efforts to keep Canadian taxpayers informed about changing tax laws, AG Tax professionals have prepared a summary on the required information that needs to be disclosed on the modified Form T1135. This should help ensure that taxpayers have all the necessary information in place while preparing their tax returns.
Who needs to file Form T1135: Foreign Income Verification Statement?
Canadian resident taxpayers holding CAD $100,000 worth of foreign property (such as shares, bank accounts, interests, or bonds other than personal property items as cars) need to file Form T1135.
Additional Information Requirements for the New Form T1135
- Every detail for each of the foreign property/ies, such as institution, investment entity, cost and year-end values, needs to be disclosed.
- If a taxpayer makes certain elections, (s)he would not need to convert the value of the asset into Canadian dollars and can state the value of the foreign asset in its actual currency. However, if this condition is not fulfilled, all figures should be converted into Canadian dollars for reporting.
- Other than property held in the U.S. or United Kingdom, taxpayers would need to mention the region along with the country where the property is located.
- The country code for the property also needs to be mentioned for every net income reported from the foreign property. Example: If it is a foreign fund, the country for each security held in the fund needs to be provided, a tedious process when compared to the previous Form T1135, which only required reporting of the total income.
- The highest value (during a tax year) needs to be reported for each foreign property held, which could be more time consuming as the previous T1135 reporting only required ranges of values that need to be reported such as more than $1 million, more than $700,000, and so on.
- Capital Gains and losses from an asset, and the cost of each property needs to be provided on the form.
- If a taxpayer received tax slips T3 and T5 in regards to the foreign properties, specific details do not need to be disclosed for these properties on Form T1135. However, the value needs to be included in the aggregate value mentioned on Form T1135.
Taxpayers should be aware that the reporting requirement covers foreign assets held in Canadian brokerage accounts as well, and since e-filing is still not available for Form T1135, it would need to be sent separately even if using NETFILE for filing other tax returns.
Certain questions remain unanswered (“does the cost need to be reported separately for the land and building?”, and “what if the income earned from such a real estate property is attributable to another taxpayer?”). Nonetheless, taxpayers should make every effort to be compliant as negligence could result in severe penalties from a charge of $25 per day, to a maximum of $2,500 (plus interest), with multiple penalties of $2,500 if several years of reporting have been missed.
Tax laws can be complex. It is advised that every taxpayer consult a professional regarding foreign income reporting in case anything has been missed, before the CRA launches any compliance action against the taxpayer.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.