In the last few years you have probably noticed a question on your Canadian income tax return asking if you owned any foreign property:
“Did you own or hold specified foreign property where the total cost amount of all such property at any time, in the tax year, was more than $100,000 CAD?”
What Is The Foreign Property Question About?
The Canada Revenue Agency asks this question because the government wants to keep track of whether or not you might have some foreign assets that may be earning income that should be reported on your Canadian income tax return. As you probably know, if you are a tax resident of Canada, you must report all income from all worldwide sources on your Canadian income tax return, and be taxed on it.
Tax residents of Canada must report all income from all worldwide sources on a Canadian income tax return and be taxed accordingly.
What Is Specified Foreign Property?
The term specified foreign property refers mostly to property that is owned primarily for the purpose of generating income, i.e., investments of some sort. This is to distinguish such property from foreign assets you may own whose main purpose is simply your own personal enjoyment.
While we usually think of property as real estate, foreign property can also be in the form of cash in an foreign bank account, or shares in a foreign corporation. So for example if you have an investment portfolio, you might have some shares in foreign corporations whose cost (the total amount paid to purchase the shares) at some point during the year adds up to more than $100,000CAD.
If you say yes to this question about foreign property, you are required to file form T1135, also known as a Foreign Income Verification Statement. On this form you report all the foreign property that you have that adds up to this $100,000 or more in cost. You’ll have to include some details about that property as specified by the form. Form T1135 is due at the same time as your income tax return.
Filing form T1135 does not trigger any additional tax.
It’s important to note that filing the T1135 does not trigger any additional tax. If you have been reporting the income from your foreign investments on your Canadian income tax return as is required by law, then all tax on that income has already been taxed properly.
Why File The Foreign Income Verification Statement (T1135)?
But while there are no tax implications for filing T1135, there are steep penalties for failing to file it. If your failure to file is unintentional, the penalties are $25 a day to a maximum of $2,500 for every day the T1135 is late. On the other hand, if the Canada Revenue Agency determines that the failure to file was an intentional omission, the penalty jumps to $500 per month to a maximum of $12,000.
What if I Didn’t File My Foreign Income Verification Statement (T1135)?
If you have neglected to file the T1135, there are some steps you can take. You may be able to file it under the Voluntary Disclosure Program to avoid penalties.
If you have to complete a T1135 and you’re not feeling confident about it, or if you are late and you want to file it now and possibly avoid penalties, get in touch and we can probably help you with that.