In the 2013 Budget, the Minister of Finance proposed making changes to the way Canadian taxpayers disclose their foreign investment holdings and the revenues derived therefrom on Form T1135, Foreign Income Verification Statement. On June 25, 2013, a revised and expanded Form T1135 was released and applies to taxation years ending after June 30, 2013. The criteria for those who must file Form T1135 was not changed however the new Form T1135 now requires the disclosure of more specific information.
Previously, Canadian taxpayers were only required to report on Form T1135, any specified foreign property costing in total more than $100,000 that it owned at any time during the year, by simply checking a box that specified the range of cost of the type of foreign property, the general geographic location of the property and the total foreign income derived from all properties held.
The new Form T1135 now requires more detailed information to be disclosed for each specified foreign property including:
- The name of the bank, investment or other entity holding funds outside of Canada
- The foreign country to which the property relates
- The cost of the property at the end of the year, the highest cost amount during the year and the income or loss, and capital gain realized from each property during the taxation year.
Some relief is provided from this detailed reporting requirement to the extent the taxpayer has received a T3 or T5 from a Canadian issuer in respect of a specified foreign property for a taxation year. The specified foreign property is excluded from the detailed reporting requirement for that taxation year however, the taxpayer must still complete Form T1135 and indicate that all the required information is disclosed on a T3 and T5 information form issued by a Canadian issuer. The taxpayer is also still required to file Form T1135 by the filing due date even if a T3 or T5 was issued in respect of all specified foreign property held during the taxation year. In this case, the taxpayer would complete the identification information and check the reporting exclusion box on Form T1135. Note however, that a specific property may be subject to the reporting exclusion in one year and not in another year depending on whether it earned income for which a T3 or T5 was issued.
The CRA has stated that it will impose harsh penalties for those taxpayers that do not comply with their Form T1135 filing and reporting obligations.
The Canada Revenue Agency hopes the additional detail provided will enable them to better administer the tax system and identify foreign non-compliance. Unfortunately, it is the taxpayers who will bear the burden of increased compliance costs and time to comply with the additional disclosure.
To ensure you comply with the reporting required by the new Form T1135, we recommend that you start gathering this information as soon as possible. In our experience to-date, the summary reports typically provided by investment managers outlining the activity and month-end and year-end balances provide the information required by the new Form T1135 however, more work is still required to collate the information into the format required. We have provided a typical example of the information provided by investment managers in Appendix I. In Appendix II, we have shown how this information is required to be reflected on the new Form T1135. Depending on the volume of activity during the year, the work required to get from the summary reports (as shown in Appendix I) to the format required by the new Form T1135 (as shown in Appendix II) can be time consuming. To ensure the information is in the appropriate format, the following are some suggestions:
(i) Have a discussion with your investment manager to see if they are able to provide the information in the format as reflected in Appendix II.
(ii) If there is not a lot of activity, collate the information yourself.
(iii) Contact your Segal Advisor to discuss collating this information for you for a fee.
INORMATION REQUIRED FOR T1135 PLUS SAMPLE PRESENTATION
Information Required for T1135
For each specified property (i.e. fund, security, interests in non-resident trusts, real property outside Canada and other property outside Canada) the following information is required:
1. Specified Property held outside Canada
- Funds/Cash: Name of bank/other entity holding the funds
- Shares: Name of corporation
- Indebtedness: Description of indebtedness
- Interests in Non-Resident Trusts: Name of trust
- Real Property Outside Canada (other than personal use and real estate used in an active business): Description of Property
- Other Property Outside Canada: Description of property
2. Country code
3. Maximum amount (i.e., cost) held during the year
4. Cost amount at year-end
5. Funds held at year end
6. Income (loss)
7. Gain (loss) on disposition
The information should be provided in the following format (the information below is an example based on the details in Appendix I):
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.