PERSONAL TAX TRAINING

FOREIGN INCOME VERIFICATION (T1135)

The Foreign Income Verification Report (Form T1135) is a mandatory form for Canadian taxpayers who hold specified foreign property with a total cost exceeding CAD $100,000 at any time during the tax year. The form is designed to ensure compliance with foreign income reporting and to combat offshore tax evasion.

What is Specified Foreign Property?

• Bank accounts held outside Canada.
• Shares of non-resident corporations (not held in an RRSP, TFSA, or similar account).
• Foreign rental properties.
• Foreign investments in trusts or mutual funds.
• Other assets outside Canada that generate income or capital gains.

Exclusions include personal-use property (e.g., vacation homes) and property held exclusively for business purposes.

Reporting Thresholds and Methods

The CRA provides simplified reporting options for taxpayers whose specified foreign property has a total cost of CAD $100,000 but less than CAD $250,000. For taxpayers exceeding the CAD $250,000 threshold, detailed reporting is required.

• Simplified Reporting: Includes aggregate totals for income, gains, and losses.
• Detailed Reporting: Requires itemized reporting for each property or account.

Filing Requirements

Form T1135 must be filed annually by individuals, corporations, trusts, or partnerships holding specified foreign property exceeding the CAD $100,000 threshold. The form can be submitted electronically with the T1, T2, or T3 return. For paper filers, a completed copy of Form T1135 must be mailed to the CRA.

Penalties for Late Filing or Non-Filing

The CRA imposes significant penalties for failing to file Form T1135 on time:

• Late Filing: A penalty of $25 per day, up to a maximum of $2,500, for failure to file by the due date.
• Gross Negligence: Penalties up to 5% of the property's cost may apply in cases of gross negligence or intentional non-compliance.
• Criminal Charges: Severe non-compliance may result in prosecution under the Income Tax Act.

To avoid penalties, ensure timely filing and maintain accurate records of all specified foreign property.

Supporting Documentation

While Form T1135 does not require supporting documents to be submitted, taxpayers must retain detailed records of their foreign property, including purchase and sale agreements, income statements, and bank records, for at least six years in case of a CRA audit.

Amending Form T1135

If you discover an error after filing, you must submit an amended Form T1135 to the CRA. Corrections can be made electronically through CRA’s My Account or by filing a revised paper copy.

Conclusion

Filing Form T1135 is a critical component of Canadian tax compliance for taxpayers with foreign investments. Be proactive in understanding your obligations and maintaining accurate records to ensure compliance with CRA requirements. Consult a tax professional for further guidance.