So many speculations on the IRS’ burdensome foreign-account and property-reporting requirements has been going around, and it is quite understandable. But another major thing that is usually overshadowed by this discussion is the similar requirement that has been imposed on Canadian tax filers by the CRA.
CRA, in a bid to address tax non-compliance concerning foreign assets, introduced a revised Form T1135, a Foreign Income Verification Statement in the year 2013. A significant amount ofmore detailed information concerning foreign property owned by citizens of Canadais now required for the Form T1135.
Even better, it is mandatory that the form be filed not later than the tax payer’s income tax return due date which is mostly April 30, without extension.Any tax payer who doesn’t comply with this filing requirement shall face severe penalty. There is a similarity between the Form T1135 and the United States Form 8938 Statement of Specified Foreign Financial Assets. We have compiled the below question and answer summary on the T1135 to assist our clients.
Q: Who is expected to file Form T1135?
A: Every Canadian resident who owns specified foreign property at any time of the year, that is worth over $100,000 is required to file Form T1135 for that year. Immigrants to Canada are not required to file Form T1135 for their first year of residing in Canada, except they have previously been Canadian tax residents. Nevertheless, a tax payer must file Form T1135 for all subsequent taxation years as well as with the year of departure from Canada. Aside Canadian individual residents, corporations and trust residents in Canada are also required to file Form T1135.
Q:What does specified foreign property mean?
A:Specifiedforeign property may be quite difficult to define. It mostly entails non-Canadian propertieslike money held outside Canada, stocks in non-Canadian companies, debt owed by a non-resident, interest on a non-Canadian investmentas well as any physical property located outside Canada. Specified foreign property does not include properties for personal usage like vacation homes.
The term specified foreign property also entails non-Canadian investmentsexisting in Canadian stock accounts.In some cases, tax payerswho have physical properties situated outside Canada are also required to file Form T1135.
Q: Is there anything new about the revised Form T1135?
A:The revised form requires filers to divulge very important information concerning foreign properties. The revised Form requires the below information to be disclosed for every foreign asset.
- Name of the foreign company or corporation holding the funds or property or a description of the foreign property.
- The country where the property is situated.
- Maximum cost-per-year of the foreign asset.
- End of year returns of the foreign asset
- Total income or loss associated with the foreign property
- Total gain or loss attainable on the sale on the foreign property.
Q: Are there any exemptions provided on the revised Form T1135?
A:Yes! There is an available exemption for reporting specified foreign assets for tax payers who have gotten tax slips regarding such foreign property. In this case, there is no additionaldisclosure regarding such foreign assets required. Thisrelief may exclude specific reportingfor foreign properties in Canadian brokerage account whose income has earlier been reported in a T3 or T5 slip, and not otherwise.
Furthermore, it is also required that every bond or stock help in a foreign investment portfolio be reported on Form T1135 as this will require tax payers to divulge a substantial amount of extra information
Q:How does one file Form T1135?
A:The first thing every tax payer should do is collect all the necessary information required in the Form T1135 at the beginning of the way rather than wait till April 30, its due date. Currently, Form T1135 cannot be filed electronically so tax payers who file their income tax returns electronically are advised to send a signed copy of Form T1135 to the CRA on or before the due date.
Have questions? We have answers. Contact us here.