Foreign Income Verification Statement – Form T1135 Version 5

On October 29, 2014, the Organization for Economic Co-operation and Development (OECD), together with the G20 Nations approved and implemented an international standard for the “automatic exchange of information agreement.” 

Around the world today, more than 123 countries and jurisdictions are now committed to tax and financial information sharing with targeted implementation by September 2017.

Canada is involved, and, over the past 24 months has actively tailored its systems and requirements to enable Canada to participate fully in the Tax Information Exchange Agreements, which brings us to Form T1135 – Foreign Income Verification Reporting.

How did this happen?
Sometime prior to 2006 - some reports are as early as 2002 - a bank computer technician walked out of a bank in Switzerland with the electronic files of foreign nationals who had money invested with their employer.  His concern was that individuals around the world were avoiding taxation, and he was helping them do it.

This enterprising individual then offered the files for sale to each and every country affected and reportedly sold files to the German Foreign Intelligence Service for a reported $4 million. He was then charged with theft and breach of trust under Swiss banking laws, went to jail for four years and was then released to enjoy his $4 million.  You will recall that this was fully reported in April 2013 when released by the International Consortium of Investigative Journalists.

Foreign Income Verification Statement
Form T1135 is designed as an “information only” form tied with the personal tax return.  While it is not actually part of the tax return, the due dates coincide with the due dates of tax returns, thereby tying it to the T1 return.

In general, any individual, partnership, corporation or trust which holds a foreign asset, is a beneficiary of a foreign holding or has a right to acquire a foreign holding which totals to an aggregate cost exceeding $100,000 is required to file the information return.  In general, reporting requirements consist of:

• The country where the asset is held
• The maximum cost during the year of the holding
• The cost at the end of the year and,
• The amount of any income earned or lost on the holdings

Excluded Property
Taxpayers are not required to report certain assets and these items do not form part of the $100,000 aggregate cost required to trigger reporting requirements.

• Personal Use Property
• Property used exclusively in an active business
• Shares or indebtedness of a Foreign Affiliate
• Interest in an exempt Trust under ITA s.232.2(1)
• Registered funds, such as RRSP’s and RIF’s, and,
• A right to acquire any of the above.

Penalties
Canada is serious about foreign holdings reporting and has added penalties in order to back up their resolve.

 
As in most situations, it’s always best to be pro-active.  Regardless of their individual financial specialty, all financial advisors and their clients will be affected by Form T1135.

As advisors we need to gather the information our clients will need in order to comply with the legislation.  We also need to educate our clients on their compliance responsibilities. 

This is not an item that can be ignored.  Specifically written into the legislation is a clause stating the due diligence is NOT a defence for non-compliance.

Next week's Knowledge Bureau Report will cover the details and reporting requirements of "specified foreign income" and how this needs to be reported for each type of foreign holding requiring reporting in Part 2 of this article.