What T1135 tax form?

If you are a newcomer to Canada, figuring out the tax forms can be a big challenge. In this article we’ll discuss one such tax form – T1135 which is for foreign income reporting.

What is form T1135?

Form T1135 is a tax form used in Canada for reporting foreign property owned by Canadian residents. The full name of the form is "Foreign Income Verification Statement." It is a supplementary form that is filed with the Canadian income tax return when the total cost of specified foreign property exceeds $100,000 at any time during the taxation year.

The purpose of Form T1135 is to provide the Canada Revenue Agency (CRA) with information about foreign assets held by Canadian residents for tax reporting and compliance purposes. It helps the CRA ensure that individuals accurately report their worldwide income and comply with Canadian tax laws.

Who is required to fill form T1135?

Any person who is a resident in Canada and has specified foreign property with a cumulative value over one hundred thousand dollars during any part of the year tax must file the T1135 “Foreign Income Verification Statement.” The specified foreign properties include a broad range of holdings held outside Canada

Under certain circumstances, several bodies like individual, corporation, partnership and trust may be required to file Form T1135. Here is a breakdown –

Individuals: Canadian taxpayers that own specified foreign property worth more than 100,000 Canadian dollar each have to complete and submit form T1135.

• Corporations: A Canadian corporation that owns certain specified foreign property with aggregate cost above one-hundred-thousand dollars for the year must furnish Form 1135.
• Partnerships: If, in case of partnerships, every partner’s share of the partnership’s specified foreign properties is taken into consideration when determining if form T 1135 must be filed.
• Trusts: Form T1135 is required for Canadian resident trusts whose specified foreign property has a cost of more than C$ 100,000.

What qualifies as Specified Foreign Property?

As per the guidelines, the following are considered specified foreign property –

• Bank accounts in other countries
• Shares in foreign companies
• Interest in a foreign trust
• Loans you’ve made to non-residents
• Real estate outside of Canada
• Foreign mutual funds
• Partnership interest, in which that partnership holds specified foreign property
• Bonds and debentures from foreign entities
• Intellectual property (such as patents or copyrights) held outside Canada
• Interest in a foreign insurance policy
• Precious metals and gold certificates held outside Canada
• Futures contracts held outside Canada

What is not considered as Specified Foreign Property?

One needs to understand that not all assets need to be reported under form T1135. These are the exemptions –

• Personal-use property 
• Property used exclusively in an active business
• Shares or debts of a foreign company that are affiliated with your Canadian business
• A principal residence outside of Canada
• Interest in an exempt trust
• A right to purchase any of the above

Information needed to fill form T1135?

You would need the following information to fill form T1135 –

• Social Insurance Number (SIN)

Your Social Insurance Number is a vital identification number required for the completion of Form T1135.

• Details of Each Foreign Asset

Comprehensive information about each foreign asset that qualifies as specified foreign property must be provided. This includes a detailed description of the assets held.

• Country of Location for Each Asset

Indicate the country where each asset is situated. This information is necessary for determining the correct country codes required for reporting.

• Maximum Funds Held and Cost of Each Asset

Specify the maximum funds held as well as the cost of each asset during the tax year. This information plays an important role for you to accurately report the financial details regarding your foreign property.

• Income Gained or Lost from Each Asset

Disclose any earnings or losses derived from each identified foreign property throughout the tax year. This encompasses dividends, interest, and any other pertinent financial gains or losses.

• Asset Sale Information

If you sold any of the specified foreign assets during the tax year, provide details on the sale, including any capital gains or losses incurred. This information is essential for a comprehensive overview of your financial transactions related to foreign property.

How to fill form T1135?

There are two parts of the form – part A and part B. You need to fill one of these parts only. Read on to know more about each part of the form.

Part A – Simplified Reporting Method

• In this section, basic information about a taxpayer including her/his name and address, SIN, and other ID numbers/details are provided.
• It also asks if and when the taxpayers or associates owned some assets exceeding $100,000 total cost during the last financial year.
• Individuals who have specified foreign property which can be categorized as simple and follow the requirements stated in part A.

Part B – Detailed Reporting Method

• Part B is tailored for taxpayers facing more intricate scenarios involving foreign assets.
• It necessitates in-depth details about each specified foreign property, encompassing a description of the property, its location, the peak funds held throughout the tax year, and the property's cost amount.
• Taxpayers are obligated to disclose income earned or lost from each specified foreign property. Additionally, they must specify whether any of these properties were divested during the tax year, including the corresponding details of capital gains or losses.
• Part B is a more exhaustive section, aiming to furnish the Canada Revenue Agency (CRA) with an intricate breakdown of holdings and financial activities related to specified foreign properties.

How does CRA check foreign income?

CRA uses diverse ways to ascertain and investigate foreign income disclosed by taxpayers. Here are some of the key mechanisms –

• Information Exchange Agreements

There are numerous bilateral information exchange agreements between Canada and other countries. Such arrangements permit the CRA to obtain such personal details on Canadian citizens that are pertinent during foreign tax authorities. It is the common reporting standard or CRS in the short form that is an international program for the automatic exchange of data on financial accounts among different countries.

• Foreign Reporting Forms

Certain foreign income and assets must be reported to a taxpayer using some specific forms like Form T1135 (the Foreign Income Verification Statement). The completion of those forms provides the CRA with lots of information regarding foreign holdings and income that they can compare with other sources of information.

• Financial Institutions Reporting

The CRA also requires Canadian financial institutions to make certain reports of some financial accounts they have on their books as a resident. For instance, this is applicable for accounts held outside of Canada. This data assists the CRA in validating self-declared external earnings.

• Tax Audits and Reviews

CRA performs auditing and review of taxes returns submitted, for the reason that they should be in conformity to tax legislations. The CRA may require more supporting documents while processing different types of foreign income. Some inconsistencies may result in additional investigations into the individual’s tax compliance history.

• Data Analytics and Risk Assessment

Data analytics and risk assessment are sophisticated methods that are used by the CRA to detect unusual patterns or deviations within tax returns. This helps them direct their resources to high-risk cases like those involving underreporting of foreign income.

• Whistleblower Program

There is a whistleblower program of the CRA that encourages people to leak information on tax evasions. A whistleblower can also receive compensation if the information he or she provides leads to payment for unpaid taxes.

Penalties on failing to fill form T1135

Not submitting Form T1135 by the stipulated deadline incurs a penalty of $25 per day, with a minimum penalty set at $100 and a maximum of $2,500. If the failure to file is deemed intentional, arising from gross negligence, or persists beyond 24 months, additional penalties may be imposed. More severe penalties are applicable in cases where individuals knowingly provide false statements or omissions.

Furthermore, the failure to report income from specified foreign property (SFP) on your income tax return, coupled with a late filing of Form T1135 or inaccurate reporting of SFP income on the form, extends the reassessment period by an extra three years (from three to six years). It's crucial to note that this prolonged limitation period allows the Canada Revenue Agency (CRA) to comprehensively review the entire tax return for the respective year, not limited solely to the income related to foreign property. Non-compliance with these reporting requirements can result in both financial penalties and an extended window for tax reassessment.

Frequently Asked Questions (FAQs)

1. When do I have to file form T1135?

The deadline for filing form T1135 is April 30^th. But we recommend that you do it well in advance and don’t wait till the last minute to avoid any confusion or hassle.

2. Do I need to file form T1135 every year?

If the cumulative value of your foreign assets exceeds $100,000 at any point within a tax year, it is mandatory to complete Form T1135, known as the "Foreign Income Verification Statement," for that particular year. Consequently, if the total value of your foreign assets consistently surpasses the $100,000 threshold on an annual basis, you are required to submit Form T1135 each year to fulfill the reporting obligation.

3. Can I fill form T1135 electronically?

Individuals can file electronically the form T1135 for tax years on or after 2017 using EFILE or NETFILE. Electronic filing of form T1135 is available with EFILE for corporations.

For tax years from 2014 onwards, corporations may choose to electronic the filing of their returns, but partnerships are allowed. For tax years beginning after 2016, people can file online through EFILE or NETFILE.

After submitting your eFiling and pay stub, there is an instant message that informs you that the CRA has acknowledged receipt of the form. It is important to please keep this confirmation number as your record. Electronic filing of form T1135 for trusts is available for tax years commencing in 2021 and later. Trusts have access to a system called EFILE, which makes it possible for them to file their Form 1135 specifically, during these specific tax years.

4. Do I have to report foreign personal-use property on form T1135?

Personal-use property is not a requirement for reporting. This category encompasses items like property intended for a primary use as vacation house (see real property questions). For example – jewelry, antique furniture, and fine arts including rare folio, manuscripts, books, stamps, and coins.