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Are You Holding Foreign Assets?

For several years, the Canadian government has made it a priority to fight international tax evasion. This is why the authorities require taxpayers to complete many forms regarding the assets they hold abroad, including Form T1135 - Foreign Income Verification Statement.

In June 2013, significant changes were made to this form following release of the 2013 federal budget.

The new form now has many more questions about each company that does not reside in Canada. In addition, investors are still required to provide information about their holdings with Canadian brokers, despite numerous taxpayer complaints about this.

Form T1135

Form T1135 must be completed by any taxpayer who owned foreign assets with a total cost of over $100,000 at any time during the taxation year. Foreign securities held in registered plans (RRSP, RRIF, TFSA, RESP) are not required to be reported on this form.

According to information provided by the Canada Revenue Agency, to properly complete this form, "shares of non-resident corporations owned by a resident registrant or held on deposit with a Canadian or foreign broker" are considered foreign property. For example, if you hold securities listed on U.S. exchanges in your brokerage account, you must declare these or risk foregoing an exclusion.

To find out which foreign property you must report, please visit the Canada Revenue Agency website NOTE - This link will open in a new tab..

Exclusion

To reduce the administrative burden, some taxpayers can now benefit from an exclusion for foreign property if they have received a T3 or T5 from a Canadian issuer. In this case, the details of the foreign property would not need to be disclosed in any of the Form T1135 tables.

This exclusion applies to each foreign asset held and for each taxable year in which such property was held. For example, if several items are held in one account, only the assets for which an income T3 or T5 has been issued for a particular taxation year are covered by the reporting exclusion, and only for the year in question (and no others).

To take advantage of the exclusion, investors must check the appropriate box on Form T1135, and it must be submitted to the tax authorities. Therefore, whether the exclusion is applicable or not, form T1135 may need to be filed by many taxpayers.

Your 2013 Income Tax Return

If you check "yes" in your 2013 tax return, indicating that you hold foreign property with a total cost of over $100,000 during the tax year, a reminder to file a Form T1135 will be added to your 2013 notice of assessment. If you have not filed this form by April 30th 2014 for foreign assets held in 2013, you may be subject to penalties.

If you hold foreign assets but have not reported these in previous years, we encourage you to remedy this by making a voluntary disclosure. Taxpayers who do not correct deficiencies in their Canada Revenue Agency files through a voluntary disclosure may be subject to significant penalties.

If you have any questions regarding your situation, please contact your accountant or tax advisor.

Since the levels and bases of taxation can change, any reference in this publication to the impact of taxation should not be construed as offering tax advice; as with any transaction having potential tax implications, clients should consult with their own tax advisors.

The author

Patric Saint-Onge

Patric Saint-Onge

CPA, CA, LL.M.Fisc., TEP, Tax Specialist.
Patric Saint-Onge has been a tax specialist for over 15 years. In 2002, he co-founded the firm Corriveau Saint-Onge Inc. which specializes in Canadian taxation.

Mr. Saint-Onge has worked on major tax cases, applying complex fiscal concepts throughout his career.

He has also been a speaker on numerous occasions for both industry professionals as well as the general public. Among others, the Institute of Chartered Accountants of Quebec has requested his services as a speaker. He has also been invited as an expert in taxation on several television and radio shows, and frequently collaborates with journalists covering the economy to help with articles on various topics.