Foreign Asset Reporting Requirements

Investments held outside of Canada require additional reporting in your personal as well as corporate tax filings.  If at any time in the year, you have invested more than $100,000 outside of Canada that the CRA would consider to be “specified foreign property” you are required to complete a T1135 – Foreign Income Verification Statement.

In response to the many foreign accounts discovered in recent years – taxpayers are now required to complete a form that details foreign assets.

A simplified method is available where the cost of the total foreign holdings is less than $250,000.  The simplified method only requires:

• Type of property
• Country code(s)
• Gross income from all specified property
• Gain(loss) from the disposition of all specified foreign property

Where the cost of foreign assets in more than $250,000 a more detailed form asks for information including:

• Names of specific foreign institutions and countries where these assets are located
• Foreign income earned on those assets
• Maximum cost of these assets during the year

You will need to provide information that includes the following:

• Funds held outside Canada
• Shares of non-resident corporations (shares of corporations that reside outside of Canada)
• Indebtedness owned by non-residents
• Interest in certain non-resident trusts
• Real property situation outside Canada (other than personal use property and real property used in an active business – including vacation properties that are occasionally rented out)
• Other types of foreign property such as tangible property not used in a business and certain rights under contract

You will also need to include the country code for each of the above; the maximum and year end cost amounts; income or loss from each; and capital gains realized on an individual basis.

Reporting exclusions need to be determined on individual specified foreign property.  As such, each investment needs to be disclosed separately.  However if a T3 or T5 was issued for a particular year, that property may be excluded from detail reporting.  Note that the T1135 must still be completed by the due date – with an exclusion box checked – however the T3 and T5 may not be issued in every year (as an investment may not be profitable in a particular year) – so you need to be careful.

The foreign income reporting requirement does not include:

• Personal use property – used for personal use and enjoyment (vacation property, vehicles, artwork)
• Assets used in an active business such as inventory, equipment and buildings

This form needs to be filed each year.  The penalty for failure to file a return is $25 per day for up to 100 days (minimum of $100 and a maximum of $2,500).  Where the failure to file is done knowingly or under circumstances amounting to gross negligence, the penalty is $500 per month for up to 24 months (maximum $12,000), less any penalties already levied.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. © 2021 Shajani LLP.

Shajani LLP is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.