Tax Update – Foreign Income Verification Revisions

Posted on January 8, 2013 by djb | Posted in Highlights

Tthe Canadian government announced in the 2013 Federal Budget that they would be releasing a revised T1135 (Foreign Income Verification Form) to ensure better compliance with Canadian tax laws. The revisions to this form have now been drafted by Canada Revenue Agency (see http://www.cra-arc.gc.ca/E.pbg/tf/t1135/).

Starting with the 2013 taxation year, Canadians who hold foreign property with a cost of over $100,000 will be required to provide additional information to the CRA. The criteria for those who must file a Foreign Income Verification Form (T1135) has not changed; however, the new form has been revised to include more detailed information on each specified foreign property.

As a reminder, the specified property to be included on the reporting are:

  • Funds held outside Canada (in a bank account or any other form);
  • Share of non-resident corporations (excluding foreign affiliates);
  • Indebtedness owed by non-resident(s);
  • Interests in non-resident trusts;
  • Real property outside Canada (excluding personal use property and real estate used in an active business); and
  • Other property held outside Canada

Increased reporting requirements require details for each specific asset, including:

  • the name of the specific foreign institution or other entity holding funds outside Canada;
  • the specific country to which the foreign property relates;
  • the maximum cost amount during the year and the year-end cost amount;
  • the type and amount of income generated from each foreign property; and
  • the gain or loss on any disposition(s)

Canada Revenue Agency has added an important exclusion for the above reporting requirements – if the taxpayer has received a T3 or T5 slip in respect of a specified foreign property, that property is excluded from the additional reporting requirements. It appears that the T1135 still needs to be filed but there is a check-box to indicate that the exclusion is met, and no further detail is required on those properties.

Therefore, there will be more extensive reporting and detail required for taxpayers with foreign property that is not included on a T3 or T5.

In addition to the changes to the form, the 2013 budget also stated that there is a three-year extension of the normal reassessment period if the taxpayer fails to file the form when required or fails to report the required information on the form.These measures apply to all taxation years starting in 2013. Please note that the penalty for late-filing this information form is $25/day per form, to a maximum of $2,500. Additional penalties may apply for false statements or known omissions.

If you have foreign property, including shares in US and foreign companies held in your non-registered portfolio, please contact your local DJB office to discuss the changes and what additional information we will require from you and/or your investment advisor for the preparation of your 2013 tax return.