PWL Capital March 28, 2014 Personal Wealth Tax Tip: Do I Need to File a T1135? New reporting requirements and a commitment to heavier enforcement of penalties have brought the T1135 form into the light. Do you need to be filing one? The T1135, or Foreign Income Verification Statement, is a form to disclose all “specified foreign property” held by Canadians in non-registered accounts. “Specified foreign property” encompasses all non-Canadian property, but we will use US property in our examples. Unfortunately, to the average individual, foreign property can be misconstrued as just real estate property held outside Canada, but this is not the case. Foreign property includes amounts in: Foreign bank accounts US investment accounts Shares in foreign companies (i.e. non-Canadian stocks, US listed ETF’s etc.) Bonds and debentures issued by foreign governments or companies (ex. US Treasury Bonds, a Microsoft bond etc.) Income producing real estate (i.e. vacation homes are exempt) Offshore mutual funds The complete list can be found on the CRA website. Luckily, investments held inside Canadian registered accounts (RRSP’s, RRIF’s, TFSA’s etc.) are exempt from this reporting requirement, as are foreign securities held by Canadian mutual funds and ETF’s. This means the average investor only has to worry about non-registered accounts and foreign bank accounts. For individuals with investments outside registered accounts, the form must be completed if the aggregate cost of all investments exceeds $100,000 CAD at any point during the year. For example, if you have $50,000 in a US bank account and $60,000 cost of Microsoft shares, you must file a T1135 because the cost of your total foreign investments are C$110,000, above the C$100,000 threshold. Many of you might be thinking, this isn’t new, I/my accountant has completed this form for many years. This is correct, but starting next year, there will be greater requirements to report on a property-by-property basis, rather than reporting in aggregate. If you have multiple US holdings, this can become a very time-consuming and tedious task. There is a transition period in 2013, which your accountant can guide you through. If you’re in the opposite boat thinking “I thought that just meant foreign real estate, I’ve never filed a T1135”, then listen up. One of the reasons the T1135 came into light recently (other than the advanced reporting requirements) is that the CRA has also committed to enforcing the penalties for not filing this form. I’ve outlined the penalties below: DESCRIPTION PENALTY Failure to Comply Failing to file T1135 $25/day (max: $2,500) Failure to Furnish Foreign-based Information Failure to file done knowingly or under gross negligence $500/month (max: $12,000) Failure to Furnish Foreign-based Information when demanded Failure to file knowingly or under gross negligence when a demand to file a return is issued $1,000/month (max: $24,000) Additional Penalty After 24 months, the penalty increases to: 5% of the cost of foreign property If you haven’t been filing the T1135 and you have foreign investments, foreign bank accounts and/or foreign real estate with a cost totaling more than C$100,000, consider the voluntary disclosure process to get caught up on your T1135 filings. Please note that US and foreign investments may be difficult to determine. A stock may be traded on the TSX with a Canadian headquarters, but be incorporated in the US, and is therefore considered foreign property. Fortunately, most PWL clients have portfolios that avoid many of these complications. In summary, if you have investments in non-Canadian securities held outside registered accounts or foreign bank accounts with a cost totalling C$100,000 or more, you need to make sure you or your accountant is filing the T1135. This form cannot be filed electronically, so it must be completed and mailed to the CRA in Ottawa. For more information, the CRA has a number of FAQ’s that can help answer many questions. ___ Note: If you are a client and are concerned that this might affect you, please contact us and we will be more than happy to assist you. Share: Facebook Twitter LinkedIn Email
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