Canadians who hold foreign property in their non-registered brokerage accounts will no longer have to go through the arduous task of collecting detailed information for the purpose of their 2013 foreign property filing.
Under the tax rules, if at any time in the year the total cost amount of all “specified foreign property” you own exceeded $100,000, you have to file Form T1135, the “Foreign Income Verification Statement.”
Specified foreign property includes: funds held on deposit outside of Canada, foreign real estate, other than personal residential real estate that isn’t income producing, and shares and debt of non-resident corporations, even if held in a Canadian non-registered brokerage account. Securities held in registered accounts like RRSPs, RRIFs, RESPs and TFSAs are exempt.
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.
In an increased effort to combat international tax evasion by Canadians, last year’s budget promised to revamp and re-launch what it calls a “strengthened” Form T1135. The revised version of this form, released in June 2013 by the Canada Revenue Agency, asks for more detailed information about your foreign property, including the names of specific foreign institutions and countries where any foreign assets are located, the foreign income earned on those assets and the maximum cost amount of those assets during the year.
It was this latter requirement that was causing Canadian investors who are subject to the reporting rules to panic as to how they could possibly gather the information required on the highest cost amount of every foreign security owned. Many contacted their accountants who often referred them to their financial institutions.
A concerted lobbying effort to get some relief from the onerous, detailed reporting that was to be required for the T1135 reporting this tax season led to an announcement late Wednesday of a special transitional rule for 2013.
Under this transitional rule, if you held specified foreign property in an account with a Canadian registered securities dealer, you now simply have to report the combined fair market value of all such property at the end of the tax year, rather than reporting the details of each property. This combined value is to be included in Category 6 of Form T1135, under the heading “Other property outside of Canada.” More details on how to take advantage of this transitional reporting can be found on page 4 of the updated Form T1135 on the CRA website.
In addition, the CRA announced an extension of the filing deadline for Form T1135 for 2013 to July 31, 2014, for all taxpayers, “in order to provide further assistance in the transition to the new reporting requirements.”
Whether the transitional rule will be extended for future years is unknown, but the bigger question remains: why do taxpayers need to report foreign property held in Canadian brokerage accounts in the first place? After all, the CRA already gets information about foreign income paid to those accounts through the T3 and T5 reporting system and gets information about the disposition of securities through the T5008 reporting.
Perhaps more lobbying is in store.