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lot has been made of the IRS’ onerous foreign-account and property-reporting requirements, and understandably
so. But largely overshadowed by that discussion is a similar requirement that
the CRA has inflicted on Canadian tax filers.
As
part of its efforts to address tax noncompliance involving foreign property,
CRA, in 2013, introduced a revised Form T1135 Foreign Income Verification
Statement. Form T1135 now requires significantly more detailed information
regarding foreign property owned by Canadian residents.
What’s
more, the form must be filed by the taxpayer’s income tax return due date
(generally April 30), and no extension is available. Taxpayers who fail to
comply with the filing requirements face stiff penalties—up to for late filing.
Form T1135 is similar to the U.S. Form 8938, Statement of Specified Foreign Financial Assets.To assist our
clients, we’ve put together the following Q&A summary about the T1135:
Q:
Who is required to file Form T1135?
A:
Any Canadian resident who, at any time during the year, owned specified foreign
property with a total cost in excess of $100,000 is required to file Form T1135
for that taxation year. Individuals who immigrate to Canada are not required to
file Form T1135 in the taxation year in which they first become Canadian tax
residents (unless they were previously Canadian tax residents). However, Form
T1135 must be filed for all subsequent taxation years, including a taxpayer’s
year of departure from Canada. In addition to Canadian individual residents,
Form T1135 must also be filed by corporations and trusts resident in Canada.
Q:
What is specified foreign property?
A:
The definition of specified foreign property is quite broad. It includes most
non-Canadian assets, such as funds held outside of Canada, shares in
non-Canadian corporations, indebtedness owed by a nonresident, an interest in a
nonresident trust that was acquired for consideration, as well as real property
situated outside of Canada. Specified foreign property excludes personal-use
property, such as a vacation home.
Specified
foreign property also includes most non-Canadian investments held in Canadian
brokerage accounts. Thus, in certain cases, taxpayers whose assets are all
physically located in Canada may still be required to file Form T1135.
Q: What is new about the revised Form T1135?
A:
It requires filers to disclose significantly more information regarding foreign
assets.For each foreign asset, the revised form requires the following information
to be disclosed on a per-asset basis:
·
Name
of the foreign entity holding the funds, name of the foreign corporation or
foreign trust, or description of the foreign property;
·
Country
where the foreign asset is located;
·
Maximum
cost of the foreign asset during the year;
·
Cost
of the foreign asset at year-end;
·
Amount
of income (or loss) related to the foreign asset; and
·
Amount
of any capital gain (or loss) realized on the disposition of the foreign asset.
A:
Yes, an exemption is available for reporting specified foreign property for
taxpayers who have received Canadian tax slips related to such foreign property
(e.g., a T3 or T5 slip). In these instances, no additional disclosure related
to such foreign assets is required. However, while this relief may exclude
specific reporting for foreign assets held in a Canadian brokerage account for
which income has been reported on a T3 or T5 slip, it would not exclude foreign
securities held in the same Canadian brokerage account for which there was no
income to be reported on a T3 or T5 slip.
In
addition, each stock or bond held in a foreign investment portfolio is required
to be reported separately on Form T1135. This will require taxpayers to compile
a significant amount of additional information.
Q:
How is Form T1135 filed?
A:
Taxpayers should begin collecting the necessary information to complete the
T1135 early in the new year, rather than waiting until April 30, when the form
is due. Form T1135 currently cannot be filed electronically. Taxpayers who
electronically file their income tax returns should forward a signed copy of
Form T1135 to the CRA by the due date.
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