With the recent release of the International Consortium of
Investigative Journalists' (ICIJ) investigation of offshore tax
havens used by a law firm based in Panama (known as the
"Panama Papers"), the question of what Canada is doing to
ensure that its taxpayers are disclosing offshore assets and
reporting the related income is front and centre in the minds of
Since 1998, Canadian taxpayers (individuals, corporations,
partnerships and trusts) have been required to file Form T1135,
Foreign Income Verification Statement, to report all specified
foreign property owned during the tax year if the cost of such
property exceeds $100,000.
Specified foreign property is a defined term in the Income Tax
Act (ITA) and includes the following:
funds or intangible property
(patents, copyrights, etc.) situated, deposited or held outside
tangible property situated outside
a share of the capital stock of a
an interest in a non-resident trust
that was acquired for consideration;
an interest in a partnership that
holds a specified foreign property unless the partnership is
required to file Form T1135;
a property that is convertible into,
exchangeable for or confers a right to acquire a property that is
specified foreign property;
a debt owed by a non-resident,
including government and corporate bonds, debentures, mortgages and
an interest in a foreign insurance
precious metals, gold certificates
and futures contracts held outside Canada.
Since its inception in 1998, Form T1135 has gone through one
main redesign, having been quite basic until the 2013 taxation
year, at which point the form was amended to require significantly
more information, making its completion quite onerous.
For the 2015 taxation year, Form T1135 was redesigned again to
implement a two-tier information reporting structure for specified
foreign property. Under this two-tier structure, the reporting has
been simplified for taxpayers who hold specified foreign property
with a total cost of more than $100,000, but less than $250,000.
This simplified reporting resembles the earlier version of Form
T1135 that was in place prior to 2013. For taxpayers who hold
specified foreign property with a total cost of more than $250,000,
the detailed reporting method continues to apply.
Failure to file Form T1135 by the due date of your income tax
return can result in significant penalties, ranging from $25
per day (minimum $100 and maximum $2,500) to a maximum of $1,000
per month (maximum $24,000) in cases of gross negligence, or even
potentially 5% of the cost of the foreign property (after 24
months). Failure to report significant offshore income can result
in criminal prosecution.
Canada Revenue Agency's (CRA) efforts to combat
international tax evasion and aggressive tax avoidance extend
beyond imposing penalties for failing to file Form T1135 and/or
reporting offshore income and includes the Offshore Tax Informant
Program (OTIP), which allows the CRA to offer financial awards
ranging from 5% to 15% of federal tax collected if the information
provided about international tax non-compliance helps CRA assess
federal taxes of at least $100,000. Furthermore, the 2016 Federal
Budget has committed $444 million over the next five years to be
put towards these efforts.
The government's reach is also extending beyond taxpayers.
The Department of Finance released draft legislative proposals on
April 15, 2016 to implement the Common Reporting Standard (CRS),
which will require financial institutions in Canada to identify
accounts held by non-residents and to report information, including
account balances, interest and dividend income and sale proceeds to
the CRA. Financial institutions will have until July 1, 2017 to
have these procedures in place. More than 90 jurisdictions have
committed to implement the CRS, which was developed by the OECD.
Once this is in place, Canada will receive similar information from
other jurisdictions with regards to assets held in those
jurisdictions by Canadian residents.
Given the increased efforts by the CRA to target tax evasion,
taxpayers are wise to review their foreign asset holdings.
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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