In our blog
"T1135 transitional guidance" we reported that the
Canada Revenue Agency ("CRA") developed transitioning
rules which were welcomed relief to taxpayers but applied only to
the 2013 tax year reporting period.
On July 8, 2014 the CRA announced that these T1135 transitioning rules
will become permanent for 2014 and thereafter, but there are a few
Availability of the "aggregate reporting
method": the "aggregate reporting method"
will be available only to property held in accounts of Canadian
registered security dealers and federally or provincially regulated
T3/T5 exception: most notably, the CRA
eliminated the transitional exception for income earned in the
Canadian registered securities dealers' account that has been
reported on T3/T5 slips. The previous transitional Form T1135
provided a reporting exclusion if the taxpayer received a T3 or T5
slip from a Canadian issuer in respect of a particular specified
foreign property. However, if the taxpayer owned a specified
foreign property held by a Canadian registered securities dealer,
and no T3 or T5 was issued (as the property did not earn any
income), the taxpayer would still have been subject to the expanded
reporting requirements. This exception was confusing and generated
a large amount of criticism from the accounting community. For 2014
and thereafter, all income will have to be reported regardless of
whether T3/T5 slips have been issued. On the one hand, elimination
of this exception will reduce uncertainty in preparing the form;
however many practitioners were hoping for a simple broad-based
exemption for any investments held in a Canadian registered
security dealers account since their brokers are already required
to disclose any such investment income to the CRA annually.
Fair market value ("FMV") by
country: for investments that qualify for the
"aggregate reporting method", taxpayers may choose only
to report total securities by country for each account held with
Canadian registered securities dealers and Canadian trust
companies. The amounts to be reported will be the total highest
month-end FMV for the year and the total FMV at the end of the year
(all on a country by country basis). This is a welcomed relief as
monthly and year-end cost amounts may not be readily available on
most monthly investment statements.
Income and gain by country: the CRA is
unwilling to budge on reporting of income and gain on a
country-by-country basis for reporting under the "aggregate
reporting method". Therefore for each investment account that
qualifies for the "aggregate reporting method", the
taxpayer will be required to report the total income and gain by
country. Since securities dealers do not always have full
information about tax cost, taxpayers should not rely solely on
gain or loss amounts shown on dealers' statements.
Filing deadlines: CRA will accept the 2013
version of the T1135 Form for the 2014 tax year for taxpayers who
file their forms prior to July 31, 2014. T1135 Forms filed after
July 31, 2014 will have to use the new T1135 Form. The due date for
the 2013 and 2014 versions of the T1135 Form will be due on the tax
return filing due date.
It is heartening to practitioners that CRA is listening to the
professional community. The permanent implementation of the
aggregate reporting process is welcome news. However with the
elimination of the T3/T5 exception without any corresponding
broad-based exemption for investments held in Canadian registered
security dealers accounts, undue compliance burden is placed on
taxpayers arguably without much value to the Canadian treasury due
to the low-risk nature of those accounts. The Canadian
Government's scrutiny of off-shore assets appears to be moving
full steam ahead, which is consistent with developments in other
countries as well. However, one has to ponder whether there is a
point where undue preparation burden placed on taxpayers in a
self-assessing tax system may actually discourage the compliance
and disclosure that the rules were intended to achieve.
Moodys Gartner Tax Law is only about tax. It is
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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