Tougher rules on foreign property
Earlier this week, the government took yet another step to combat international tax evasion by canadians by following through on its federal budget promise to revamp and relaunch what it calls a “strengthened” Foreign Income Verification Statement (Form T1135).
“Stronger reporting requirements will provide the canada revenue Agency with more information to crack down on those who attempt to cheat the system,” said Gail Shea, Minister of National revenue, who made the announcement Tuesday when meeting with members of the certified General Accountants Association of canada to discuss various tax matters.
The revised T1135, applicable for 2013 tax filings, will require canadians who hold “specified foreign property,” at any time in the year, with a cost over $100,000, to provide additional information to the CRA. The new information required includes: the name of the specific foreign institution or other entity holding funds outside canada, the specific country to which the foreign property relates and the income generated from the foreign property.
Specified foreign property includes: funds held on deposit outside of canada, foreign real estate other than personal residential real estate that isn’t rented out, and shares and debt of non-resident corporations.
The penalty for failing to file this form on time is $25 per day, to a maximum of $2,500, which can increase if you knowingly or under circumstances amounting to “gross negligence” fail to file the form.
But there may actually be a silver lining hiding in the instructions to the revised form, at least for canadians whose only “offshore” assets are shares of foreign companies held in a canadian non-registered brokerage account.
For an investor who holds multiple foreign securities, filling out the T1135 annually has traditionally been a burdensome and sometimes costly process, which may now be a lot simpler.
The new form states that “where the reporting taxpayer has received a T3 or T5 from a canadian issuer in respect of a specified foreign property for a taxation year, that specified foreign property is excluded from the T1135 reporting requirement for that taxation year.”
This appears to be a subtle change in administrative policy, which could eliminate the reporting burden for thousands of canadians who queried why it was necessary to list u.S. and other foreign securities on the T1135 when their broker reported the associated foreign income directly to the CRA and to the investor on a T5 slip.
Note, however, that even if all your foreign shares pay dividends, you must still file Form T1135 if the total cost amount at any time during the year was over $100,000. This was confirmed by CRA spokesperson Philippe Brideau who stated that “the reporting exclusion permitted where a taxpayer has received T3 or T5 from a canadian issuer should not be confused with the requirement to file a T1135 … which is based on the total cost amount of all specified foreign property held at any time in the year whether all, or any portion, of this property is subject to the reporting exclusion.”