In the continuous battle with international tax evasion, the Canadian government recently proposed changes to the filing of Foreign Income Verification Statement (Form T1135) as a part of the 2013 federal budget. These changes will improve foreign property reporting, and serve to align Canadian reporting on foreign property with increasingly sophisticated global property reporting requirements. Given these changes, the crossborder tax specialists at AG Tax would like to update readers with Canadian filing obligations on the changes to the T1135 – Foreign Income Verification Statement.
Who needs to file a T1135?
Individuals, corporations, trusts, and certain partnerships, that, at any time during the year, own specified foreign investment property costing more than CAD $100,000 must file a Form T1135 along with their income tax return. Form T1135 must be done even if there is no income earned through the investment.
What kind of assets need to be reported on a T1135?
Foreign investment property that must be reported include any foreign income earning property such as:
• Shares held in foreign companies
• Foreign bank accounts
• Interests in certain non-resident trusts
• Bonds or debentures issued by foreign governments or foreign companies, interests or units in offshore mutual funds, and foreign real estate.
However, it does not include personal use property (foreign vacation home/car) or active business assets (inventory/equipment/building).
What are the Changes to the T1135?
Form T1135 now requires taxpayers to provide comprehensive information regarding each foreign property, including the name of the foreign institution holding the funds, the country to which the property relates, the maximum year-end cost of each property, and the foreign income generated from the property.
Extended Reassessment Period for Improper T1135 Filing
If you failed to report income from a specified foreign property on your income tax return, did not file the Form T1135 in time, did not report includable foreign property, or the foreign property was improperly identified on the Form T1135, the time period for which the CRA can reassess your form is extended by three years.
Potential T1135 Penalties
The CRA reminds taxpayers of the obligation to file Form T1135 on their Notices of Assessment. If a taxpayer fails to comply, he will be subject to a penalty of $25 per day (minimum $100 and maximum $2,500). In case one knowingly avoids filing Form T1135 or due to negligence misses filing it, the penalty is $500 per month for up to 24 months (maximum $12,000).
AG Tax LLP Can Help
As globalization increases and Canadians continue to invest abroad, it can often be unclear to a taxpayer as to whether or not the foreign property triggers Canadian foreign reporting requirements. Our cross-border tax specialists are well versed in foreign reporting requirements for both Canada and the US. If you are concerned that your foreign property might trigger a reporting requirement, and/or would like to discuss about the recent changes in the foreign property tax rules, please give us a call. Our tax professionals can help you identify your foreign property and assist you with the necessary filings.
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.