· Form T1134-A and Form T1134-B information regarding foreign affiliates and controlled foreign affiliates
· Form T1135 - information regarding foreign property
· Form T1141- information regarding transfers to non-resident trusts
· Form T1142- information regarding distributions from and indebtedness to a non-resident trust
are due when a Canadian resident’s income tax return is due. Generally individual returns are due on the 30th of April. Individuals who are self-employed file their income tax returns on the 15th of June but are obligated just as the April 30th filers to remit any income taxes owing by the 30th of April. The focus of this commentary is solely on Form T1135.
Form T1135, Foreign Income Verification Statement, has to be filed if you hold minimum $100,000 in a bank account outside of Canada or hold rental property valued at $100,000 or more outside of Canada. The following property if held outside of Canada and valued at $100,000 or more must also be reported on Form T1135 :
- Government or corporate bonds;
- Shares of a Canadian Corporation;
- Patents, copyrights or trademarks;
- Precious metals, gold certificates and futures.
The above list is not the complete list but merely an illustration of what has to be reported.
Form T1135 does not have to be filed if the property held outside of Canada is held for personal usage such as vacation property used primarily as a personal residence by you or personal property such as work of art, jewelry, rare books, stamps and coins.
Failure to file an information return such as Form T1135 and of course assuming that you have to file such an information return, will subject you to a penalty of $25 a day up to a maximum of 100 days. Do note that CRA will levy interest on the penalty of $2,500 if not paid on a timely basis.
In Jean-Claude LeClerc, 2010 TCC 99, the taxpayer Mr. LeClerc owned a condominium in Poiters, France. The value of the condo exceeded $100,000. The facts do not state this but I assume the condo was rental property. Mr. LeClerc filed his tax returns for 2003 and 2006 late. His 2003 return was filed on September 18, 2007 and his 2006 return on June 19, 2008.
Prior to 2003 he had filed his Form T1135 with his tax return on a timely basis. However due to a family illness he was late with his 2003 and his 2006 return. CRA imposed a penalty on the taxpayer for the late filing of Form T1135 which in the case for the taxation year amounted to $3,395.71. The $3,395.71 figure includes the maximum $2,500 penalty plus interest. Mr. LeClerc argued in vain that this did not make sense as the penalty levied was for an information return for a property of which CRA already was aware of its existence due to prior timely filed returns.
Justice Favreau presiding over the case at the Tax Court noted that pursuant to CRA’s policy the only means to a relief from the penalty was to apply under the Voluntary Disclosure Program. There was no other recourse as the wordings of the applicable sections of the Act, namely subsection 162(7) and 233.3(3) were clear and posed no difficulty of interpretation of Parliament’s intention which was to motivate taxpayers owning foreign property with a value exceeding $100,000 to report such property. Justice Favreau’s hands were tied and he acknowledged that the Voluntary Disclosure Program should not be the solution for a taxpayer to seek relief from penalties assessed for the late filing of Form T1135. In Paragraph 19 he states “the appellant cannot be blamed for his lack of knowledge with regard to that program even though he had studied tax law. In fact, it is not obvious that that program could apply to taxpayers who did not commit fraud and who reported all their foreign-source income for several years”. Justice Favreau concluded that the matter should be left for Parliament to decide.
Dear reader, if you have neglected to file Form T1135 or other information returns on a timely basis in previous years, then you may wish to consider the Voluntary Disclosure Program to seek relief from CRA’s penalty and interest that will likely be levied against you.
The guidelines as set out by CRA states that one can only file under the Voluntary Disclosure Program if
- the disclosure is voluntary i.e. there is no pending enforcement action;
- it is complete; the period of non-compliance is at least one year past due; and
- the applicant is subject to penalties for the compliance at issue.