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T1135 – Foreign Income Reporting Changes

The 2013 Federal budget introduced significant revisions to existing foreign reporting requirements. As a result, Form T1135 – Foreign Income Verification Statement (“T1135”) has been revised to reflect these new requirements. The T1135 form must be filed by Canadian residents that at any time during the year owned specified foreign property with a total cost of more than $100,000 Cdn. Specified Foreign Property includes:

  • Cash held in a foreign bank/trust account, prepaid debit or credit cards
  • Shares in a foreign company (including those held in a Canadian brokerage account)
  • Real estate situated outside of Canada (excluding personal use property and property used in an active business)
  • Bonds or debentures and other debts issued by foreign governments or foreign companies
  • Interests in certain non-resident trusts
  • Interests or units in offshore mutual funds
  • Interest in some partnerships that holds specified foreign property
  • Intangible assets held outside of Canada and not used in a business and certain rights under contract
  • An interest in a foreign insurance policy
  • Precious metal contracts outside Canada

The revised T1135 requires significantly more detail be provided, as compared to the previous version:

  • Name of the bank or other entity that holds the funds outside Canada
  • Country where each specific foreign property is located
  • Cost of each specific foreign property (based on the highest cost during the year)
  • Cost amount of each specific foreign property at year end
  • Income/loss and/or capital gain/loss from each specific foreign property during the year
  • A description of all real estate held outside Canada (excluding personal use property and property used in an active business)

Exclusions from T1135 Reporting

Property used or held exclusively in the course of carrying on an active business and shares of a foreign affiliate are among certain items that are excluded from reporting. If the taxpayer received a T3 or T5 slip for the particular year from a Canadian issuer regarding the income earned on the specified foreign property, that property is excluded from the T1135 reporting requirement. Generally, this will occur if a foreign share or bond is held through a Canadian brokerage account and it pays income (interest, dividends) to the holder of the investment. However, the cost of this investment still has to be included in determining whether the $100,000 limit has been exceeded. Each investment must be reviewed annually to ensure that it meets these requirements. If the investment does not pay interest or dividends to the investor, or the income is not reported on a T3/T5 for that particular year, then the investment must be reported on the T1135.

Increased cost of Compliance

Due to the additional information required, completing the T1135 will be more onerous and costly. Canadian investment advisors are aware of the revised reporting requirement; and accordingly, we are hopeful they will amend their annual investment reporting to include this additional information for their clients.

Penalties for Late Filing

The penalty for late filing a T1135 is $25 per day, to a maximum of $2,500 per year. In addition, if you fail to comply with the requirements of the T1135, the normal assessment period for any tax matter for a taxation year will be extended by three years. This means that the associated income tax return for the year will not be statute barred until six years after the date of the original notice of assessment. Please do not hesitate to contact us at any time if you have any questions.