Shore Up Your Tax Knowledge on Offshore Asset Reporting

Year end is a great time to re-engage clients in conversation about financial decision-making, especially for clients with offshore assets who may need to report some of them on Form T1135 Foreign Income Verification.

Who must file Form T1135? Canadian residents who own assets abroad must submit a newly enhanced Form T1135 Foreign Income Verification to CRA to disclose whether they had “specified foreign assets” held during the year. The form is required if the total cost of the properties at any time exceeded $100,000 Canadian, but a simplified reporting method is available if those assets cost less than $250,000.

This includes funds held in foreign bank accounts and investment accounts; pre-paid credit cards held outside Canada; shares of non-resident corporations (other than foreign affiliates); certain real property situated outside Canada and other types of foreign property such as intangible property not used in a business.

Investment Accounts: If a taxpayer holds a mutual fund that is resident in Canada but which owns significant foreign equity in it, the mutual fund itself must report the foreign income to the taxpayer. Self-reporting is required only if no slips are issued.

Brokerage Accounts: T1135 filing is required on the pro-rata portion of investments held in foreign accounts. It is important to confirm whether or not investments or income is received, on an investment-by-investment basis. Corporations holding such investments must also file the form.

What’s Not Reportable: Excluded from the foreign disclosure requirements are personal-use properties, like a vacation home used primarily (50% of the time or more) for personal use; property used exclusively in an active business; property in an RRSP, RRIF or a registered pension plan; mutual funds that include foreign investments if these are reported to the taxpayer on a T Slip; property of immigrants (those who file a return for the first time in Canada) and shares in a foreign affiliate.

Auditing Time Has Been Expanded: The reassessment period for T1135 reporting has been extended from three years to six years if the taxpayer failed to report income from a specified foreign property, if Form T1135 was not filed on time, or a specified foreign property was not identified properly on the form.

Failure to Comply Is Expensive: File the T1135 form by the regular filing due dates—April 30 for individuals or June 15 for owners of unincorporated business—whether or not you file a T1 tax return. The penalties for failure to file are very expensive: $25 a day for up to 100 days (yes, that’s $2500), plus gross-negligence penalties of $500 a month for up to 24 months. In the case of tax evasion, the greater of $24,000 and 5% of the cost of the property can be charged.

A New Snitch Line Is Open: CRA has opened a “snitch line” for you to earn rewards if you report international tax evaders. You could earn up to 15% of the additional taxes collected due to your tattle, if $100,000 or more is collected. And yes, the fee is taxable in the year received.

Evelyn Jacks is a best-selling Canadian author of 52 books, including Family Tax Essentials: How to Create a Wealth Purpose with a Tax Strategy. Evelyn is the Founder and President of Knowledge Bureau, a national educational institute focused on Real Wealth Management™. For more information see www.knowledgebureau.com.

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