Year-End Planning: Don’t Forget Foreign Asset Reporting

Do you understand the Canadian reporting requirements that apply when assets are held offshore? Year-end tax planning includes the assembly of information to stay onside with tax authorities. The filing of form T1135 Foreign Income Verification is required by April 30 in the cases discussed below. Failure to file will attract expensive penalties.

Assets subject to reporting on form T1135:

• Funds and tangible or intangible property held outside Canada
• Shares in a non-resident corporation owned by the taxpayer (except foreign affiliates)
• Shares in Canadian corporations held outside Canada
• Interest in a partnership with foreign property unless it files T1135
• Interest in or right to foreign property
• Debts owed to non-resident companies, governments, etc.
• Interest in a foreign insurance policy
• Precious metals, certificates and futures contracts held outside Canada

Assets not subject to reporting include assets used in an active business; Canadian mutual funds, RRSPs, RRIFs, TFSA, RESP that may contain foreign content; or any personal-use property. Personal-use property includes vacation property that is used more than 50% of the time for personal use.

Assets upon which the cost base is $100,000 CAN or less will not attract reporting on form T1135. But reporting is required if the cost is over $100,000, and those requirements differ depending on the level of the cost base, as follows.

Assets whose total cost base is more than $100,000 but less than $250,000:

• Form T1135 must be filed by the filing due date of your personal return—either by EFILE, NETFILE or on paper.
• Report:
  • Types of assets owned
  • Top three countries where assets are held
  • Income from assets in the year
  • Gains or losses from assets in the year

Assets whose total cost base is $250,000 or more:

• T1135 must be filed by the filing due date of your personal return—either by EFILE, NETFILE or on paper.
• Report:
  • Funds held outside Canada: Name of bank/company holding funds, country, maximum funds held in year, funds held at end of year, income from funds.
  • Shares in non-resident corporations: Name of corporation, country, maximum cost in year, cost at year-end, income, gain or loss.
  • Foreign Indebtedness: Description, country, maximum cost in year, cost at year-end, income received, gain or loss.
  • Foreign trusts: Name of trust, country, maximum cost in year, cost at year-end, income received, capital received, gain or loss.
  • Real property or other foreign property: Description, country, maximum cost in year, cost at year-end, income, gain or loss.
  • Property held by Canadian securities dealer or trust company: Name of dealer/trust company, country, maximum FMV in year, FMV at year-end, income, gain or loss.

Penalties are harsh if you fail to file, as described below.

• Failing to file T1135: $25 per day for up to 100 days (minimum $100 and maximum $2,500)
• Knowingly failing to furnish foreign-based information: $500 per month for up to 24 months (maximum $12,000), less other penalties already levied (double if a demand to file is issued)
• Additional penalty: after 24 months, 5% of greater of cost and value of the foreign property less any other penalties already levied
• False statements: greater of $24,000 and 5% of the cost or value of the foreign property

Note that a voluntary disclosure can be made to avoid interest and penalties. But Form RC 199 Voluntary Disclosures Program (VDP) Taxpayer Agreement must be filed. It’s important to see a tax specialist for help in either case; a DFA-Tax Services Specialist can give you valuable advice in this area and you can learn more on the topic at the upcoming Distinguished Advisor Workshops taking place in four cities across Canada in the next couple of weeks.

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