Canada: Canadian Tax Law Firm Complete Guide To CRA T1135 Forms

Last Updated: July 28 2017
Article by David Rotfleisch

Foreign Investment Verification, or T1135, is a form that must be filed with Canada Revenue Agency (CRA) by anyone who, at any time during the year, owns foreign property valued more than $100,000 in Canadian currency. Failure to file or incomplete disclosure of foreign property may result in monetary penalties and in certain instances may carry gross negligence charges against the taxpayer.

It is important to note that the $100,000 threshold is always assessed in Canadian currency. For example, $98,000 of foreign property in U.S. dollars is likely to meet the $100,000 threshold once converted to Canadian dollars. In contrast, $88,000 of foreign property in Australian dollars may not meet the $100,000 threshold.

The $100,000 threshold is based on the adjusted cost base of the foreign property, and not the fair market value of the assets. However, if the foreign property was a gift or inheritance, the cost is the fair market value of the asset at the point in time when the taxpayer received the gift or inheritance.

What has to be Reported on Form T1135: Specified Foreign Property (SFP)

Taxpayers are required to declare, using a T1135 form, all their foreign property that can be classified as Specified Foreign Property. Specified foreign property refers to foreign property that in addition to meeting the $100,000 cost threshold falls into one of CRA's specified categories, as follows:

  • Real property that is located outside of Canada that meets the $100,000 cost threshold must generally be reported. (There is an exception, discussed below, for personal use of property.) For example, ownership of a condominium, house or even vacant land outside of Canada requires a taxpayer to declare this property in a T1135 form. In addition to tangible property, such as real estate, a taxpayer must also report intangible property that is held outside of Canada.
  • Intangible property such as money in foreign bank accounts, shares, stocks, bonds and even copyrights or patents held outside of Canada must be declared in a T1135 Form.
  • Specified Foreign Property may also include life insurance policies issued by a foreign insurer.
  • Precious metals, gold certificates and futures contracts held outside of Canada are also considered foreign property that must be reported.

Depreciable Specified Foreign Property

Where the Specified Foreign Property is depreciable property, the cost amount is the Undepreciated Capital Cost (UCC) of the property. Depreciation, as an accounting concept may have two distinct meanings. First, depreciation refers to the value of the asset that has been used up over time. For example, a manufacturer may write off the cost of a new piece of equipment over time, or distribute the cost of the asset over the equipment's lifetime. Buildings, equipment, machinery and motor vehicles are examples of assets that may be classified as depreciable property under Income Tax Act (ITA). For a full list of most common class of depreciable property and the corresponding rate of depreciation, see the CRA website.

Real Property

Real property refers to land and all things attached to it. In every day usage and as pertaining to offshore assets, real property includes real estate assets such as single unit housing, condominiums, or shopping plazas. A trailer that is permanently attached to land may also be considered real property. If you are unsure if your real estate in a foreign country must be reported, see the Canada Revenue Agency (CRA) real property questions.

Canadian Companies Traded on Foreign Stock Exchanges

There are many Canadian companies traded on foreign stock exchanges. A taxpayer is not required to declare this type of investment on a T1135 form. Generally, the currency of the holding or the stock exchange where the shares of the Canadian Corporation are bought or sold is not determinative. The shares of a Canadian corporation are not Specific Foreign Property. An investment held in a U.S. brokerage account is not necessarily a foreign investment. For instance, holding Barrick Gold or Thomson Reuters in a U.S. brokerage account that is traded on the Toronto Stock Exchange (TSX), and has dividends that are paid in US dollars, are considered assets of a Canadian Corporation. In this example, the Barrick Gold or Thomson Reuters shares are not Specified Foreign Property.

However, shares of a Canadian corporation which are held in a brokerage account outside of Canada are considered specified foreign property.

Foreign Companies on Canadian Stock Exchanges

There are foreign companies listed on Canadian stock exchanges. TMX.com has a downloadable Excel workbook which includes 2 worksheets with lists of US Companies that are listed on the TSX and TSXV (TSX Venture Exchange).

American Depository Receipts (ADRs)

American Depository Receipts, also referred to as ADRs, trade on the U.S. stock exchanges, but represent shares of a non-U.S. corporation, and must be reported. One issue that may arise is which country code to use in order to meet the CRA reporting requirement.

ADRs should be reported as a security of the underlying non-resident corporation in either category 2 or, if applicable, category 7 of the T1135 form. Category 2 refers to the shares of a non-resident corporation and does not include shares from foreign affiliates of a resident company. ADRs that are held in an account with a Canadian registered securities dealer or a Canadian trust company may be included in Category 7 of the T1135 form.

Where the residence of the underlying non-resident corporation cannot be determined after exhausting all reasonable efforts, it is acceptable to use "Other" as the country code. The country of the underlying security issuer can often be found in J.P. Morgan's ADR website.

U.S. or other Foreign Shares in a Canadian Brokerage Account

Shares are intangible foreign property and they may qualify as Specified Foreign Property. Shares of a U.S. corporation or other foreign shares that are held through a Canadian brokerage account that meet the $100,000 cost threshold in Canadian Currency must be declared in a T1135 form.

Foreign-based Trust or Corporation

Foreign based trusts or corporations must also be declared in a taxpayer's annual filing. However, it is important to note that a taxpayer is not required to declare investments in a Canadian mutual fund.

Investments in a non-Canadian mutual fund or exchange traded fund that meets the $100,000 is a Specified Foreign Property that must be declared in a T1135 form.

Foreign Property that does not have to be declared on Form T1135

Even if the foreign property meets the $100,000 cost threshold, the CRA does not necessarily require the taxpayer to declare all of his or her foreign assets. Foreign property that is used primarily for personal use does not have to be declared. Primary use for personal purposes means that the particular asset is used, at least 50% of the time or more, for a personal and non-commercial purpose.

For example, whether a Canadian taxpayer has to declare the cost of a condominium in Florida, with a cost base of at least $100,000 in Canadian currency depends on how the taxpayer uses this property. If the taxpayer uses the condominium exclusively for his or her vacations to Florida, the cost of the condominium does not have to be declared in a T1135.

However, if the taxpayer rents the condominium for at least the majority of, if not the entire year, then the CRA requires the taxpayer to declare the cost of this property in a T1135 form.

It is important to note that merely renting out a real estate property does not automatically trigger reporting requirements. For instance, if the taxpayer rents out the Florida condominium for part of the year, and he or she does not have a reasonable expectation of profit from the rent collected, and in addition, the individual is merely covering part of the condominium expenses, then, the condominium is a personal use property. The taxpayer is not required to disclose the cost of the condominium.

A second category of offshore property that a taxpayer does not have to declare in a T1135 form is property that is used for commercial purposes, and is used to carry out business. For example, a taxpayer who is in the business of renting out apartments outside of Canada is not required to report the cost of this property in a T1135 form.

Reporting Requirements and the 2015 Revisions to Form T1335

CRA form T1135 was redesigned in 2015. Whether filing for years prior to or after 2014, the CRA allows a taxpayer to use the newly revised version of this form. A taxpayer may also use this newly updated form for amending a previously filed T1135 form.

The revised T1135 reporting requirements differ from the old version of the form. The current form has a two-tier reporting structure: a simplified reporting as outlined in Part A and a detailed reporting structure found in Part B of the T1135 form. Whether a taxpayer declares using Part A or Part B of T1135 depends on the total adjusted cost base of the taxpayer's Specified Foreign Property.

Part A applies to taxpayers who hold foreign property with a total adjusted cost base of more than $100,000 but less than $250,000 in Canadian currency during the year. The reporting requirements apply even if the cost of taxpayer's foreign property falls below the $100,000 threshold by the end of the year. A simplified reporting under Part A merely requires the taxpayer to tick-off the box for each type of property held during the year. A taxpayer is not required, although he or she can, provide a detailed description of his or her foreign property.

Part B applies to taxpayers whose total adjusted cost base of their foreign property exceeds $250,000 at any point during the year. If at any time during the year the cost of a taxpayer's foreign property reaches $250,000 in Canadian currency, Part B of the T1135 form must be used, even if the cost has dropped below this threshold by the end of the year. Declaring under Part B may be onerous, requiring the taxpayer to provide a detailed description of all his or her foreign property.

Some taxpayers own offshore assets in more than three countries, and Part A requires the taxpayer to report the "top three countries" where the taxpayer owns foreign property. In order to determine the "top three" countries, a taxpayer needs to total month end cost amounts of his or her foreign property in each country. The taxpayer must then report only the three countries that correspond with the top three highest month-end cost amounts.

Filing Deadline for T1135 Form

For individuals, corporations and trusts, the T1135 form is due on the same date as the income tax return.

Electronic Filing

Individuals and corporations can file form T1135 electronically for the 2014 and later tax years. For years before 2014, the form has to be paper filed.

Whether filing for years prior to or after 2014, the CRA allows the taxpayer to use the newly revised Form T1135. The taxpayer may also use this newly revised form for amending a previously filed T1135 form.

Penalties for Failure to File a T1135 Form

Failure to file a T1135 can result in strict penalties being levied against the taxpayer. A strict penalty means that a taxpayer is automatically penalized even if he or she did not know of his or her obligation to file a T1135. A taxpayer who fails to file a T1135 form by the deadline will be penalized. At a minimum, the penalty is $25 per day for up to 100 days. The minimum penalty for failure to file is $100, and the maximum penalty is $2,500. This penalty is likely to be applied even if the taxpayer's failure to file was not intentional.

When a taxpayer has committed gross negligence in filing his T1135 Form, the penalties are increased to $500 per month for a maximum of 24 months. Committing gross negligence means that the taxpayer has, with full knowledge, failed to file a T1135 Form, or his/her conduct gives the appearance that s/he must have knowingly failed to disclose and file a T1135 form.

Once the CRA contacts a taxpayer by issuing a demand to file a return, and the taxpayer's conduct amounts to gross negligence, the penalties are further increased to $1,000 per month for up to 24 months. After the 24-month period, for every year that a T1135 is not filed, the taxpayer is penalized 5% of the highest cost of the undeclared Specified Foreign Property (SFP) in the previous tax year or 5% of the highest cost of the Specified Foreign Property for every year that the T1135 is not filed.

In Douglas v Canada 2012, TCC 73, the taxpayer Mr. Douglas was penalized for not filing a T1135 on time. Mr. Douglas had taken all reasonable steps in filing his income tax every year. However, he had presumed that because his overseas assets had no tax payable, he had no obligation to file a T1135 form on time. The Tax Court of Canada agreed with Mr. Douglas, finding it unreasonable for fines to be levied for failure to report when there was no tax payable on the Specified Foreign Property.

In a more recent case, Biswal v Canada 2017, FC 529, the facts are very similar to that of the s case. In Biswal, the Federal Court again addressed the issue of strict penalty for a late filing of T1135. Ms. Biswal advanced the argument that because she was new to Canada and a pensioner, the imposed financial penalty was unreasonable and asked the court for relief. Speaking through her son who acted as a translator, Ms. Biswal made reference to the Douglas case, pointing out the similarity of her situation to that of Mr. Douglas.

In this more recent case, the Federal Court did not lift the monetary penalties imposed on Ms. Biswal. The Judge rightly pointed out that the Federal Court does not have jurisdiction to vacate the penalty imposed. Ms. Biswal's request for penalty relief was sent for a second review to CRA.

These cases demonstrate that it is unlikely that a taxpayer can gain relief from the monetary penalty imposed as a result of late filing of T1135 form by simply filing a Tax Payer Relief Application with the CRA. These cases suggest that the remedy of relief from penalty may be available through an appeal with Tax Court of Canada alone. The outcome of such an appeal in terms of the remedy sought, however, is uncertain and will likely turn on the facts of the case.

Penalties for False Statements and Omissions from T1135

Even if a taxpayer files a T1335 form, making false statements, or failing to declare all the Specified Foreign Property, may result in penalties being levied against the taxpayer. The penalty is imposed when the taxpayer's conduct amounts to gross negligence andit is the greater of $24,000 or 5% of the cost of the Specified Foreign Property.

Voluntary Disclosure Program (VDP)

The Voluntary Disclosure Program may be an option for taxpayers who have not met their T1135 form filing obligations.

If the CRA accepts a Voluntary Disclosure Application, the taxpayer will not be charged tax penalties or prosecuted for failure to file, omitting information in a T1135 form, or making false statements. However, the taxpayer will remain liable for the accrued interest on the amount owing, but may be granted partial interest relief.

The Voluntary Disclosure Program is most suitable for addressing the T1135 Form filings in the most recent 10-year filing periods. There are, however, possible solutions to the addressing this 10 year limitation period that are best discussed with a Canadian tax lawyer. Proposed changes to the voluntary disclosure program released in June 2017, if implemented, may have the effect of limiting the availability of the VDP in some circumstances.

Tax Tips

The most important tip is that you are always responsible for the accuracy of any T1135 form that you file, even when the work was done by a professional accountant or another tax preparation service. When the form is not filled out by you, best practice is to review the form prior to it submission. If you are filing yourself, it is best to use the fillable T1135 form from the Canada Revenue Agency's website.

Tracking the Cost of Your Specified Foreign Property in Canadian Currency

In order to know whether the cost of your foreign investments exceeds $100,000 in Canadian currency at any time in the year, you'll have to keep good records.

To ensure accuracy and efficiency in tracking the cost of your foreign investments in Canadian currency, it is best to create a worksheet (electronic or on paper) where you can see the total cost amount at any time during the year. It is possible for the fair market value to be under $100,000 and the cost over $100,000 in Canadian currency.

If you use a software program such as Quicken to track your stocks, investments held in a U.S account are generally shown in U.S. dollars, but you can produce a report that will show the holdings in Canadian currency. Make sure you are using Canadian currency for the report, and that "Transaction Exchange Rate" is ticked, in order to get the correct cost in Canadian dollars. This report should be done each time foreign purchases are made in a non-registered account to check the total cost. If you are not using a software, you must convert the cost to Canadian dollar using the U.S. exchange rate from the Bank of Canada or Pacific Exchange Rate service.

For foreign securities held with a securities dealer, you need to know the maximum market value in Canadian dollar during the year once you are over the $100,000 threshold. The maximum market value during a taxation year is based on the maximum month end market value.

You can calculate the highest market value using the average exchange rate for the year. However, the year-end exchange rate should be used for the year-end market value. Using a worksheet to track the month-end market value in U.S. currency during the year is an easy way to keep track of the cost of your Specified Foreign Property. You can get the average and year-end exchange rate for conversion from either the Bank of Canada or the Pacific Exchange Rate Service.

You can also use the month-end currency exchange rate to calculate the highest market value during the year in Canadian currency.

Filling out a T1135 form may not be an easy task for taxpayers with different types of Specified Foreign Property. This is especially the case when the cost of this type of property fluctuates during a given taxation year. It is best to consult with a Canadian tax lawyer to ensure you have met your obligations in declaring your Specified Foreign Property when you file your tax returns.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.