As per Canadian taxation laws, a certain category of persons is required to report details of certain tangible or intangible property called the specific foreign property, held by those persons outside the boundaries of Canada. Such reporting is done through Form T1135(Foreign Income Verification Statement). Filing T1135 is important to avoid penalties imposed by CRA.The objective of this reporting requirement is to discourage tax evasion and ensure that offshore income is reported to CRA.
Who has to report Form T1135?
The CRA imposes strict obligations to report ownership of specified foreign property in the case of the following categories of persons:
- Canadian Residents
- Canadian Corporations and certain trusts
- Certain partnerships
that hold more than $100,000of specified foreign property, at any time during the year.
The most frequently asked questions relating to T1135 are as follows:
- What is Specified Foreign Property?
The specified foreign property includes:
- Amount in foreign bank accounts, but not US Funds in a Canadian Financial Institution
- Shares or stock of non-resident corporations
- Any interest acquired for consideration in a non-resident trust
- An interest in a foreign insurance policy
- Funds or intangible property (patents, copyrights, etc.) situated, deposited or held outside of Canada
- precious metals, gold certificates, and futures contracts held outside of Canada
- Is the $100,000 threshold based on the fair market value of the property?
No, it is based on the cost amount. The cost amount is defined in subsection 248(1) of the Income Tax Act and generally, is the adjusted cost base and not the fair market value.
- How do I determine the cost amount of foreign property acquired by way of gift, bequest, or inheritance?
The cost amount of foreign property acquired by way of gift, bequest, or inheritance is its fair market value at the time the gift, bequest, or inheritance was received.
- Do I have to report foreign personal-use property on Form T1135?
No, you do not have to report personal-use property. This includes vacation property that you use primarily as a personal residence (see real property questions below) and listed personal property such as works of art, jewelry, rare folios, rare manuscripts, rare books, stamps, and coins.
- What is the due date of filing T1135?
The due date for the T1135 is the same as the due date for your personal or corporate income tax return.
The CRA has provided an inclusive definition of specified foreign property which potentially includes cryptocurrencies held abroad and vacant or unused real estate. Since it is an inclusive definition, it is always a good idea to check with your Accountant whether you need to file Form T1135 in case you hold any foreign assets.
Properties that are used in an active business and personal-use properties (which are used primarily for the personal use or enjoyment of a taxpayer or related person) are specifically excluded from the definition, alongside other more limited exclusions.
If you need any help in understanding the reporting requirements of foreign assets held by you and the necessity to file Form T1135 do reach out to us. We at Rav Bhatia CPA Corporation will ease your queries and help you out with CRA requirements regarding specified foreign assets. Book a call today!