When filing
income tax returns, Canadians have to indicate whether they own foreign assets
that had an aggregate cost of more than $100,000 (measured in Canadian
currency) at any time during the taxation year.
If they do, details of the foreign assets must be provided on Form
T1135. This is the case even if the
foreign assets are held inside a Canadian brokerage account and even if the foreign
assets did not produce any income that year.
Specific exceptions apply for specific types of foreign assets, such as
a foreign vacation home that is used only for personal purposes (in other
words, that is not rented out to others at any point in the year).
This is a
complicated filing requirement that has caught many Canadians who were unaware of the breadth of the reporting requirement. After all, the question arises on an income
tax return, not a wealth tax return.
The Canada
Revenue Agency (the CRA) revised Form T1135 in 2013. The revised form requires much more detailed
information about foreign assets, increasing even further the compliance
burden. In some cases, the cost of
compliance is out of all proportion to the value of the foreign assets.
The 2015 Budget
proposes to simplify the foreign asset reporting system for taxation years that
begin after 2014. These new rules will
not apply for 2014 returns but will apply for returns that cover the 2015
taxation year.
The
simplification will retain the CAD $100,000 aggregate cost threshold. If the total cost of reportable foreign
assets is less than CAD $250,000 throughout
the year, the taxpayer will be able to report these assets under a more simplified
system. Details of the simplified system
have not yet been released.
It does not
look as if the proposed streamlining will eliminate the need to report foreign
investments that are held in a Canadian brokerage account and in respect of
which the broker issues information slips reporting the income received. That type of streamlining would require a
statutory amendment rather than just changes to Form T1135.
If you have
failed to report all foreign assets in the past, you may be able to avoid
penalties by voluntarily disclosing the failure to the CRA. In order to avoid penalties, you must
approach the CRA before the CRA approaches you.
Generally, voluntary disclosures (also called tax amnesties by some
advisers) are initiated on a no-names basis through a law firm so that you do
not have to disclose your name until you have an idea of what the CRA will
require in order to correct the past omission.
If you need
advice about the voluntary disclosure program or believe that you may need to
make a disclosure, please contact Layli Antinuk at 250-360-2110. Any conversations will be protected by
lawyer-client privilege.
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for information about our services and lawyers' profiles.
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The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.