Introduction To The T1135 Form – Foreign Income Verification Statement
Canadian taxpayers often overlook the T1135-Foreign Income Verification Statement when preparing personal tax returns. The T1135 form requires taxpayers in Canada to report certain types of foreign property with a cost amount of over $100,000 during the year.
The form allows the Canada Revenue Agency (CRA) to track and monitor how much specified foreign property individual Canadians own. It also helps CRA ensure that taxpayers have paid taxes due on foreign income accordingly.
Key Takeaways
Canadian taxpayers must file the T1135 Foreign Income Verification Statement when their foreign properties’ total cost amount meets or exceeds $100,000 at any time in the year.
Failing to file a T1135 form on time can lead to hefty fines – late filing penalties of up to $2,500, an additional maximum of $12,000 for knowingly not filing or gross negligence and potentially other penalties.
Accurately reporting foreign income & taxable property overseas is essential for tax compliance. You should submit a complete and accurate T1135 form with your personal tax return if you meet the criteria for filing.
Deadlines apply, so extensions may need to be requested if unable to meet the original filing time frame.
Who Needs To File A T1135 Form And Why?
You have to file the T1135 form if you are:
- A Canadian resident individual, corporation, or certain trust that owns specified foreign property costing more than $100,000 anytime during the year.
- A partnership which is a specified Canadian entity with more than $100,000 of specified foreign property held anytime during the year.
What is a Specified Foreign Property?
As defined by the Income Tax Act and CRA, specified foreign property can be:
- Funds or intangible property situated, deposited or held outside Canada.
- Tangible property situated outside Canada.
- A share of the capital stock of a non-resident corporation.
- Shares of corporations resident in Canada held outside Canada.
- An interest in a non-resident trust that was acquired for consideration.
- An interest in a partnership that holds a specified foreign property unless the partnership is required to file a Form T1135.
- A property that is convertible into, exchangeable for, or confers a right to acquire a property that is specified foreign property.
- A debt owed by a non-resident, including government and corporate bonds, debentures, mortgages, and notes receivable.
- An interest in a foreign insurance policy.
- Precious metals, gold certificates, and futures contracts held outside of Canada.
Canadian taxpayers must understand which assets qualify as ‘specified’ since failing to report these appropriately can result in severe penalties from the CRA.
Specified foreign property is not:
- Property used or held exclusively in carrying on an active business.
- A share of the capital stock or indebtedness of a foreign affiliate.
- An interest in a trust described in paragraph (a) or (b) of the definition of exempt trust in subsection 233.2(1).
- A personal-use property as defined in section 54.
- An interest in, or a right to acquire, any of the above-noted excluded foreign property.
Threshold Requirements
Regarding the T1135 Foreign Income Verification statement for Canadian taxpayers, the threshold requirement refers to the total cost of a taxpayer’s specified foreign property, which must be greater than $100,000 for a Form T1135 filing requirement to apply.
To clarify a common mistake – this is the cost of the property and is not to be confused with the market value or current value of the property. Another common mistake is incorrectly including vacation property.
If you want a helping hand in completing your T1135 form, we recommend asking a qualified personal tax accountant for assistance.
Why Filing a T1135 Form is Important?
The Canada Revenue Agency (CRA) asks Canadians to include any overseas properties or assets on their tax forms. This means if you make any money from these foreign assets, it still needs to be taxed in Canada.
If you don’t report your foreign assets using Form T1135, you could be fined.
How To File A Form T1135 Foreign Income Verification Statement
The T1135 Form can be completed and submitted online via NETFILE and EFILE or paper filed to the CRA, along with relevant supporting documents.
Completing And Submitting The Form
Filing the T1135 form requires complete and accurate information to be reported regarding foreign assets.
The T1135 form has two primary parts: Part A is most commonly used and applies where the taxpayer holds specified foreign property with a cost base of over $100,000 but less than $250,000. Part B of the T1135 is applicable in cases where the taxpayer has foreign property with a cost of more than $250,000.
T1135 Part A Simplified Method
Step 1:Tick the boxes corresponding to the property type that applies to you.
Step 2:Write the country codes of the top three countries based on the maximum cost amount of the property held during the year.
Step 3:Write the total income during the year from all specified foreign properties. Indicate it in Canadian dollars.
Step 4: Write the amount of gain or loss from the disposition of all specified foreign property. Indicate it in Canadian dollars.
For tax regulation compliance, it is necessary to report gross income generated from specified foreign property and any gains or losses from disposition during the year. This includes foreign stock investments or other investments in a foreign currency.
Supporting documentation should be attached securely with any forms sent via mail or electronically submitted for review by CRA Canada Revenue Agency staff members when filing online through the My Account portal on their website.
Filing deadlines associated with completing T1135 forms depend on an individual’s circumstances – typically April 30th, but potentially June 15th if self-employed.
Late filing penalties can result in significant fees for Canadians who fail to meet submission requirements. It’s important for taxpayers to avoid paying unnecessary fines by ensuring they submit their taxes on time.
If anyone needs help understanding how the T1135 form applies specifically to them, further assistance from professional accounting firms is advisable.
RELATED: The Ultimate Guide to Finding Accounting and Tax Services in Canada
Supporting Documentation
When filing the T1135 Foreign Income Verification Statement, taxpayers only need to provide the requested information on the form, but it’s crucial to keep adequate and accurate supporting documents to make sure you can substantiate the information reported on Form T1135.
These documents could be:
- Bank statements
- Property titles
- Broker portfolios of stocks, bonds, mutual funds, and other securities held outside of Canada
- Trust documentation or financial statements if any foreign assets were bought through a trust
Failing to file your T1135 Foreign Income Verification Statement accurately or punctually may increase penalties, potentially amounting to $2,500 for late filing, an additional $12,000 for knowingly not filing or gross negligence and potentially even further penalties in addition to interest.
Challenges in preparation
Form T1135 Details
Form T1135 asks for specific info about each foreign property you own, like the highest and final costs for the year, and any income, gains, or losses from each property.
What to Report
Figuring out which foreign assets to report can be tough. Remember, it’s not just about overseas real estate. It also includes foreign company shares, funds kept outside Canada, and debts owed by people living abroad.
Valuing Assets
Report your assets in Canadian dollars. Because currency rates keep changing, this can greatly affect the worth of your foreign assets and the income they make. Keeping track of this can be quite complicated.
Calculating Income and Gains/Losses
If you own a lot of foreign assets or their value changed a lot during the year, working out the income or gains and losses for each can be difficult.
Time Investment
Preparing the form can take a while because it needs a lot of specific details.
Penalties for Errors
You can face serious fines if you don’t fill out the T1135 form correctly, which can make the process stressful.
Changing Rules
The rules for filling out the T1135 form can change every year. Staying updated can be a challenge.
Deadlines And Extensions
Individual Canadian taxpayers are required to file Form T1135 on April 30th of the following year (June 15th for self-employed individuals). Taxpayers must submit their forms and tax returns on this due date.
If you need more time, asking the CRA for an extension before the original deadline is best.
Otherwise, failure to file the Form T1135 by its deadline may result in stiff penalties imposed by Canada Revenue Agency (CRA). You have the option to file Form T1135 electronically or opt for a paper filing.
Penalties And Consequences For Not Filing A T1135
Monetary Penalties
The potential penalties can be severe for Canadian taxpayers who fail to file their T1135 form on time or correctly. The CRA may impose a minimum fine of $100 or $25 per day up to a maximum of 100 days, resulting in a maximum of $2,500 plus interest for that period.
If the taxpayer knowingly makes false statements or delays filing Form T1135 without reasonable explanation, this could result in further penalties – up to $500 per month for 24 months with a total penalty of $12,000.
On top of the above, there can be additional penalties from the CRA. Therefore, Canadian taxpayers should comply with deadlines and accurately provide specified foreign property information on their income tax returns.
Conclusion
Filing the T1135 Foreign Income Verification Statement is an essential compliance requirement for Canadians with holdings in foreign assets. It’s important to file the T1135 Form correctly and punctually to avoid costly penalties from the CRA.
As a Canadian taxpayer, it’s your responsibility to report your specified foreign property using this form and ensure that Form T1135 must be filed accurately and before the deadline.
Are you seeking an accountant to help you with your T1135 form? With our network of the best accounting firms and services across Canada, CPA Guide matches you with the right accountant that best suits your needs. Find a CPA today with CPA Guide.
FAQs:
1. What is the T1135 Foreign Income Verification Statement?
The T1135 Foreign Income Verification statement is a form used to report foreign property held by Canadian taxpayers. This document provides information to CRA on these holdings.
2. Who should file a T1135?
If you own foreign property worth $100,000 or more at any point in the year, you need to complete and submit this form.
3. What type of properties need to be reported using this form?
Properties may include:
- Foreign bank accounts
- Shares in foreign companies, even if held by a Canadian brokerage
- Foreign real estate and property outside Canada (unless personal use)
For the complete list, please visit CRA’s website.
4. Are there any exemptions available for completing this form?
If you become a tax resident of Canada for the first time, you are exempt from filing your T1135 in the first year. This exemption only applies to new residents, not to those who were Canadian tax residents in previous years.