Any Canadian resident who, at any time during the year, owned specified foreign property with a total cost in excess of $100,000 is required to file Form T1135 for that taxation year. Individuals who immigrate to Canada are not required to file Form T1135 in the taxation year in which they first become Canadian tax residents (unless they were previously Canadian tax residents). However, Form T1135 must be filed for all subsequent taxation years, including a taxpayer’s year of departure from Canada. In addition to Canadian individual residents, Form T1135 must also be filed by corporations and trusts resident in Canada.
What is specified foreign property?
The definition of specified foreign property is quite broad and includes most non-Canadian assets, such as funds held outside of Canada, shares in non-Canadian corporations, indebtedness owed by a nonresident, an interest in a nonresident trust that was acquired for consideration, as well as real property situated outside of Canada. Specified foreign property excludes personal use property (such as a vacation home).
Specified foreign property also includes most non-Canadian investments held in Canadian brokerage accounts. Thus, in certain cases, taxpayers whose assets are all physically located in Canada may still be required to file Form T1135.
What is new about the revised Form T1135?
The revised Form T1135 requires filers to disclose significantly more information regarding foreign assets.
For each foreign asset, the revised Form T1135 requires the following information to be disclosed on a per asset basis:
- Name of the foreign entity holding the funds, name of the foreign corporation or foreign trust, or description of the foreign property;
- Country where the foreign asset is located;
- Maximum cost of the foreign asset during the year;
- Cost of the foreign asset at year-end;
- Amount of income (or loss) related to the foreign asset; and
- Amount of any capital gain (or loss) realized on the disposition of the foreign asset.
The revised Form T1135 provides an exemption for reporting specified foreign property for taxpayers who have received Canadian tax slips related to such foreign property (e.g., a T3 or T5 slip); in these instances, no additional disclosure related to such foreign assets is required. However, while this relief may exclude specific reporting for foreign assets held in a Canadian brokerage account for which income has been reported on a T3 or T5 slip, it would likely not exclude foreign securities held in the same Canadian brokerage account for which there was no income to be reported on a T3 or T5 slip.
In addition, it appears that each stock or bond held in a foreign investment portfolio is required to be reported separately on Form T1135. This will require taxpayers to compile a significant amount of additional information.
How to file Form T1135?
Taxpayers should begin collecting the necessary information to complete the T1135 in early 2014, rather than waiting until April 2014 when Form T1135 is due. Form T1135 currently cannot be filed electronically. Taxpayers who electronically file their income tax returns should forward a signed copy of Form T1135 to the CRA by the due date.
Contact the tax professionals at Gedeon Law & CPA today for assistance with filing a T1135.