As Canadian income tax residents are taxed on their worldwide
income, the Government of Canada is concerned about the
underreporting of "offshore" income. As well, Canada
Revenue Agency (CRA) is always seeking to glean insight into the
tax-planning and tax-sheltering behaviour of investors. Form T1135
requires reporting by Canadian resident individuals (as well as
trusts and most corporations) of foreign property holdings in
excess of threshold amounts (i.e. cost amount more than CAD
$100,000) to provide information to the Canadian tax authorities to
address these concerns. Generally, the penalty for failure to file
a Form T1135 is $2,500 for each instance of failure (i.e. for an
individual taxpayer, for each year of failure). In addition to
financial penalties, failure to file the T1135 on time and to
properly report income from specified foreign property for 2013 and
subsequent taxation years could result in an extension of the
normal reassessment period of a tax return for an additional three
While this reporting requirement has existed since 1998, CRA
announced in its 2013 federal budget that it would be requiring far
more detailed information from taxpayers with respect to their
reportable foreign property for 2013 and future taxation years.
A revised form was released last summer. To no one's
surprise, the tax reporting and financial community raised concerns
about the volume and detail of information required and challenges
faced by taxpayers in meeting the dramatically expanded reporting
requirements. As a result, CRA announced transitional relief for
the 2013 taxation year including:
(i) streamlined reporting methods; and
(ii) a filing deadline extension to July 31, 2014 for all
Under the transitional relief, taxpayers are allowed to report
the combined value of all specified foreign property held in each
of their accounts with a Canadian-registered securities dealer as
opposed to investment-by-investment detail as contemplated by the
original expanded requirements. As well, an exception from detailed
reporting requirements is provided where the taxpayer has received
a T3 or T5. Accordingly, in February of 2014, CRA issued a revised
version of the form to reflect the transitional relief.
An Opportunity or a Threat?
For 2013 and future years, it is very important for taxpayers to
assess their reporting requirements related to foreign property
they own, especially in light of the potential extension of the
normal reassessment period by three additional years.
It's also essential to recognize that many taxpayers, often
unknowingly, have not adequately reviewed their potential T1135
filing requirements in 2012 and prior taxation years. The penalties
for late filing of Form T1135 have little relationship to the
economic significance of the oversight. Furthermore, CRA is known
to be vigilant and rigorous in their administration of these
The good news is, an opportunity exists for taxpayers to
mitigate penalties for late filing of T1135's (and potential
failure to report foreign income related to the relevant foreign
property) for 2012 and prior years, through CRA's voluntary
disclosure program. As one of the requirements of the voluntary
disclosure program is that the disclosure is "voluntary"
(that is, the taxpayer did not initiate the disclosure based on
current enforcement activities), it is important to pursue
voluntary disclosure opportunities in the very near future. There
is a concern that CRA will respond to the flurry of first-time 2013
T1135 filing on or around July 31, 2014 with enforcement / review
activity related to prior and potentially non-compliant years.
A thorough review by taxpayers (especially individual taxpayers)
of their foreign property income arising from these holdings and
treatment / disclosure in their historical Canadian income tax
returns is key to potentially alleviating penalties associated with
late filing of T1135's and improper reporting of income related
to these properties. CRA is going to great lengths to punish
taxpayers who follow a "head in the sand" approach
related to foreign property reporting (i.e. form T1135).
One More Thing
Recently (July 8, 2014), CRA released a revised Form T1135 and
related guidelines for 2014 and subsequent years. Essentially, CRA
is extending the "transitional reporting method," with
some modifications, to the 2014 and subsequent taxation year while
eliminating the T3 / T5 reporting exception.
For more information on the revised foreign property reporting
requirements (including links to the 2013 requirements and the 2013
and 2014 versions of form T1135 and related instruction), please
reference the following link from
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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