If you own certain types of foreign property you will be interested in new transitional filing relief announced by the CRA which should help you complete Form T1135, "Foreign Income Verification Statement", on a timely basis for the 2013 tax year. The CRA said it would extend the filing deadline for Form T1135 to July 31, 2014 for all taxpayers to comply with the new reporting requirements for the 2013 tax year. Further, if you hold specified foreign property in an account with a Canadian registered securities dealer, you may now choose to simply report the combined market value for all such property in that account for the 2013 taxation year on Form T1135.
Without the transitional provision, taxpayers also had to report the details of each property, country code, cost amount at year-end as well as the maximum cost of each such property during the year, which would have required an accounting for all property sold during the year. However, you will still need to report total income/loss and total capital gains/capital losses for properties held in each of these Canadian registered securities dealers.accounts.
The combined market value of your foreign investments in an account with a Canadian registered securities dealer is reported in “Category 6” of Form T1135, "Other property outside of Canada", with Canada identified as the country code. If you use the 2013 transitional reporting method, you must use it for all your accounts with Canadian registered securities dealers.
The stepped-up reporting of information on foreign investments on Form T1135 was first proposed in the 2013 federal budget as part of Finance’s measures to address tax avoidance, and applies to tax years ending after June 30, 2013. Once the new transitional relief ends, the information you are required to report starting in the 2014 tax year is significant and may increase your tax compliance burden. If you do not comply with the requirements, you may be subject to severe penalties.
Subject to the transitional relief for the 2013 tax year, including the filing extension to July 31, 2014, you are required to file Form T1135 on or before the due date of your tax returns (or information return, in the case of a partnership) if you own certain types of foreign property with a total cost amount over $100,000 (Canadian). All taxpayers are required to file Form T1135, including individuals, trusts, corporations and partnerships where the share of the partnership’s income or loss to non-resident members is 90% or less.
In the past, Form T1135 required you to only report the cost amounts of certain categories of “specified foreign property” held, including:
- Funds held outside Canada
- Shares of non-resident corporations,
- Certain indebtedness owed by non-residents
- Interests in non-resident trusts
- Real property situated outside Canada (other than vacation property)
- Other types of real property such as certain intangible property.
The CRA changed Form T1135 for 2013 to require reporting of the details about the composition of these same types of “specified foreign property” rather than just the cost amounts by categories. Subject to the CRA’s new transitional rules for 2013, the CRA requires taxpayers to include:
- The name of each specified foreign property held outside of Canada (i.e., bank account or name of corporate shares) (previously you only had to indicate the type of property, not the details)
- The foreign country where each such property is held (previously you only needed to indicate certain broad country classifications)
- Maximum cost amount during the year and cost amount at year-end for each such property (previously you only had to report the cost at year-end of each category of property within certain cost ranges)
- The income/loss and gain/loss from each such property (previously you only had to include the total income earned on the total specified foreign properties).
To help ensure compliance with the new stepped-up information reporting requirements, the CRA is now able to extend the three-year reassessment period for a taxpayer’s taxation year by another three years (to six years total) if the taxpayer fails to report income from a foreign property on his or her income tax return and does not file form T1135, files it late, or reports incorrect information on the form. The reassessment would affect the entire income tax return, not just the foreign income reporting sections. Further, penalties may apply for failing to file the Form T1135, starting with a penalty of up to $2,500. Other more costly penalties may also apply, depending on the circumstances.
Form T1135 provides some administrative relief, stating that taxpayers do not have to file a separate disclosure of foreign property on Form T1135 if a Canadian issuer has remitted a T3 or T5 slip for that property to the CRA. This relief only applies to the extent that income was reported for that specified foreign property on a T3 or T5 slip for that year. See Canadian Tax Adviser, “Foreign Information Reporting Form T1135 Applies to Taxation Years Ending After June 30, 2013”, dated August 6, 2013.
Mutual funds and unit trusts
Although mutual fund corporations and mutual fund trusts are exempted from filing Form T1135, unit trusts are required to file this form. The CRA has announced that unit trusts are also eligible for the 2013 transitional reporting to help reduce the administrative burden of complying with the new requirements.
While these changes provide relief for non-resident shareholding and indebtedness held in Canadian brokerage accounts, the filing relief for Form T1135 is only proposed for the 2013 taxation year. As a result, in the case of most individuals, you may still need to determine how to obtain this detailed information within Canadian and foreign brokerage accounts for your 2014 personal tax return.
For other taxpayers, including corporations, the new form applies for 2014 tax returns. In this case, you will have to comply with the comprehensive requirements of Form T1135. This may involve significant data gathering and, in some cases, providing line-by-line details of investments within brokerage accounts (i.e., Canadian and foreign brokerage accounts). The foreign property administrative relief, where a Canadian issuer remits a T3 or T5 slip, will still require a detailed analysis of accounts, as you must still report on Form T1135 any foreign share held in a Canadian account that does not have income reported on a T3 or T5.
Download KPMG’s new Tax Hub Canada app
KPMG’s free Tax Hub Canada App for iPads and Blackberrys provides timely, convenient tax news and tax rates to help you respond to changes in tax rules and regulations. Download the app today.
We can help
Your KPMG adviser can help you manage the impact of the changes to Form T1135 that may affect your reporting of specified foreign property. We can also help you manage your related compliance obligations and help you ensure that you are not missing refund opportunities. For details, contact your KPMG adviser.
Information is current to February 27, 2014. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.
KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG member firms around the world have 155,000 professionals, in 155 countries.
The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.
KPMG's Canadian Web site is located at http://www.kpmg.ca/
© 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.