2013 Tax Filing Changes: Foreign Income Verification Statement

December 2013

The Foreign Income Verification Statement (“T1135”) has been around since 1997.  Its purpose is to capture a Canadian taxpayer’s worldwide income and to gain disclosure of foreign holdings.  In the 2013 Budget, the federal government announced it would take further measures to ensure that Canadian taxpayers with foreign holdings pay their fair share of federal taxes.  To further this objective, the Canada Revenue Agency (CRA) revised the T1135 to require more detailed information about taxpayers and partnerships’ foreign holdings. T1135 is filed by a specified Canadian entity (“filer”), generally a taxpayer or a partnership, that holds specified foreign property (“foreign property”) having a cost amount greater than CAD $100,000 at any time in the tax year.  Remember, it is the cost of the foreign property, not its fair market value, which is counted toward the threshold amount.  Specified foreign property does not include foreign property that is for personal use, such as a vacation property.  The information required on the T1135 now includes, for each foreign property:

• The name or description of the property.

• The name of the entity holding the property.

• The specific country to which the property relates.

• The income, loss, capital gain or capital loss relating to the property during the taxation year.

• The highest cost amount during the year and the tax year-end cost amount of the foreign property.

If a filer receives a T3 or T5 from a Canadian issuer for the foreign property, he does not have to report it on the T1135.  However, that foreign property still contributes to the CAD $100,000 threshold.  Also, if several foreign properties are held in a common account, only the foreign properties for which a T3 or T5 is issued are not reported on the T1135.  The filer must still report all other foreign properties held in the common account.

In each tax year, the filer must evaluate the foreign property he holds.  The foreign property may or may not exceed the threshold each year.  Also, foreign property that is not reported in one tax year, because a T3 or T5 is issued, may need to be reported in a following year, if a T5 or T3 is not issued in that year. 

Much of the information that a filer needs for the T1135 is found in the records or statements provided by their investment advisors.  The required time to search out and collate the information is significant.

The filer must submit the T1135 for all tax years ending after June 30, 2013.  Filing the T1135 is very important.  Failing to file exposes a taxpayer to late-filing penalties and the reopening of the assessment period as it regards all tax filings, not just the filing of the T1135.

All filers should begin early in gathering the information they need to file the T1135.  Also, a filer should obtain professional tax advice on the details of preparing and filing this form.

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