Canadians with overseas property may be surprised to know that while they held those offshore assets they may have an obligation to complete and submit a form T1135 to the CRA. The T1135 form is required to be submitted by Canadians with specified foreign property that has a cost amount in excess of $100,000 for any year. This filing requirement allows CRA to monitor offshore assets and is intended to discourage tax evasion by ensuring that offshore income is reported.
The T1135 form was first announced in the 1996 Federal budget. As a result, Canada’s Income Tax Act was amended and the requirement to file the form T1135 was introduced for all years commencing in 1997.
In June 2013 CRA released a new form T1135 requiring its use for the 2013 and subsequent taxation years. However it was soon realized that taxpayers would require more time to adjust to the new requirements and the tax department delayed the application so that it would only apply to taxation years ending after June 30, 2013. In February 2014, a further extension was given when Revenue Canada announced that it was extending the filing deadline for taxpayers who are required to file the new T1135 form until July 31, 2014. This transitional relief was offered to allow taxpayers time to adjust to the new more detailed requirements.
The criteria for filing – taxpayers with overseas property costing more than $100,000 in total – remains the same.
Most recently a simplified reporting method was introduced for 2015. The T1135 was changed to introduce a two-tiered reporting system for offshore property.
T1135 Information Required
The big change was that the 2013 T1135 requires much more detailed information about assets. For example, it requires the Canadian taxpayer to disclose the name of the bank or entity that holds the taxpayer’s foreign property investment, name the country in which the offshore assets are held and detail the amount of income generated from that specified foreign property.
With the 2015 changes, Part A of the form is a new simplified reporting method for taxpayers who held specified foreign property with a total cost of less than $250,000 throughout the year. This simplified reporting method allows taxpayers to merely tick the box for each type of property they held during the year, rather than providing details for each property as was required for the previous 2013 form.
Part B of the new 2015 form is the current detailed reporting method and will continue to be applicable to Canadian taxpayers who, at any time during the year, held offshore assets with a total cost amount in excess of $250,000.
For offshore assets with a total cost of more than $100,000 but less than $250,000 throughout the year, a taxpayer can choose to use either the simplified reporting method in Part A or the detailed reporting method in Part B.
The Part A simplified reporting is based on cost amount of the offshore property. Cost amount is defined in subsection 248(1) of the Canadian Income Tax Act and generally is the adjusted cost base (ACB) of a property.
Extended Reassessment Period for T1135
When the Canada Revenue Agency made these 2013 detailed changes to the form T1135, parliament also amended the Canadian Income Tax Act ("the Tax Act") to allow for more aggressive tax enforcement by CRA against taxpayers who fail to file a T1135 or leave out relevant information.
Under the old tax rules, CRA would be statute barred from reassessing a taxpayer beyond the normal three year reassessment period. However, these changes to the Tax Act now extend the normal reassessment period a further three years if the taxpayer is late in filing the T1135 or makes a misrepresentation on the form. It is important to realize that CRA can now use this new extended 6 year limitation period as it pertains to unreported foreign income to open up and reassess a taxpayer’s entire Canadian income tax return.
Voluntary Disclosure - Toronto Tax Lawyer Help
The changes to the foreign income reporting form T1135 create a difficult path for Canadian taxpayers to follow on their own. If you have unreported income or property in a foreign country, speak to our top Toronto tax lawyers about the tax amnesty or Voluntary Disclosures Program (“VDP”). The CRA voluntary disclosure program allows Canadian taxpayers to correct unfiled returns, or inaccurate or incomplete tax information, or to disclose previously unreported tax information, including unreported offshore income or unreported offshore assets or property. By participating in the voluntary disclosure program Canadian taxpayers can file their previously unfiled T1, T2, T1135 tax forms of returns, remove civil income tax penalties and avoid criminal income tax prosecution. They may also be eligible to obtain interest relief on the amount they would owe if and when they are discovered by CRA.
Briefly, the 4 conditions for a valid voluntary disclosure are:
The disclosure is voluntary (before any CRA contact)
A tax penalty applies
The income tax information is at least one year overdue and
The tax information reported is complete.
The new T1135 simplified reporting method can be used to file prior period returns as long as the taxpayer meet the reporting requirement of Part A. As indicated above this means the total cost of all offshore assets in that previous period was more than $100,000, but less than $250,000 throughout the year. This means that when our Toronto tax lawyers submit a voluntary disclosure on behalf of a Canadian taxpayer for unfiled T1135 forms for multiple years, the simplified reporting T1135 can be used.
If you have money or assets overseas and want to ensure that you can access it here in Canada, give one of our experienced Toronto income tax lawyers a call. You’ll want the benefit of our top Toronto tax lawyers to help you repatriate your money safely and without serious consequences.
Our Toronto tax law firm can help you through all stages of the VDP process including filing a voluntary disclosure for you, carrying out negotiations with CRA and putting a reasonable payment plan in place for any income taxes you may have owing from income on the offshore assets or property.