There was much talk among tax professionals and taxpayers at this time last year about the new foreign reporting requirements issued by Canada Revenue Agency, which result in the completion and filing of Form T1135, the Foreign Income Verification Statement. As governments are increasingly looking for unreported income derived from offshore investments, CRA took the step of requesting more detailed information with respect to individuals’ foreign assets.
The basis for reporting of foreign assets to CRA is still the same and entails answering the following question on the second page of the Federal tax return:
Did you own or hold foreign property at any time in 2014 with a total cost of more than CAN$100,000? (emphasis added).
The more common types of foreign property to be reported include: foreign stocks and bonds, bank accounts held outside of Canada, foreign real estate, excluding foreign real estate for personal use only, and interests in non-resident trusts.
There are a couple of significant changes with respect to completing and filing Form T1135 for 2014 vs. 2013. First, the deadline to file the form this year is April 30, 2015. With the major changes implemented to the 2013 version of the form, CRA extended the deadline last year to July 31, 2014. Equally important is the elimination of the T5/T3 reporting exception for 2014 and subsequent taxation years. This reporting exception simplified the completion of the 2013 form as it allowed a taxpayer to check a box, thereby eliminating the requirement to provide details on individual foreign securities, as long as the foreign securities in question generated income that was reported on a T5/T3 slip.
- For the 2014 taxation year, there are two options for reporting foreign securities on Form T1135:
For each foreign security, report the country of origin, highest cost amount during the year, year-end cost amount, income (i.e., dividends or interest paid) and capital gains realized;
- For each country of origin, report on an aggregate basis the following for securities held: highest market value during the year, market value at the end of the year, income and capital gains realized. Note that this method can be used only when the foreign securities are being held with a Canadian registered securities dealer or a Canadian trust company.
For larger portfolios or those that are actively traded, the work involved could be quite time-consuming. Some financial institutions and brokerages are providing reports to facilitate completion of Form T1135.
Given the penalties for not filing, filing late or omitting to report foreign assets, it is best to have this done by a professional. For example, penalties for failure to file due to gross negligence can amount to $1,000 per month to a maximum of $24,000.
As always, when in doubt, please seek professional advice.