As an obligation, the CRA expects all Canadian taxpayers to file taxes on their properties and income; this includes those attained in Canada and those outside Canada. To this end, taxpayers are required to file specific properties that are located outside of Canada annually.
These properties become eligible for filing when all the properties’ aggregate cost is CA$100,000 or above. To fulfill this right, you’ll need the T1135 form – the foreign income verification statement.
The T1135 Form
The T1135 form (foreign income verification statement) is a form all Canadian residents, corporations, partnerships, and trusts who own specific foreign properties evaluating over CA$100,000 must file at any time of the year.
For those filing a personal tax return, there is a section where you’ll be asked if you owned or hold foreign properties at any time in the year with an aggregate of CA$100,000 or more. This is where you are required to input the details of the property(s), the country it is located, cost, etc.
When filing a corporate tax return (page 3 of the T2), a corporation will have to answer if they owned foreign properties at any time in the year with a total of over CA$100,000. If, on both grounds, the answer is Yes, the CRA requires you and the corporation must complete the T1135 form.
In a case where the income from specified foreign property has been reported on a T3 or T5 from a Canadian issuer, The CRA exempts taxpayers whose issuer has reported the revenue from the specified foreign property on a T3 r T5 from reporting specific details for the property on the T1135.
It is crucial to ensure that you file all necessary parts of this form as required. This is applicable even if you are using an accountant to do your taxes, as there are penalties attached to defaulters.
Properties to be Reported in the T1135 Form
- Funds in foreign bank/trust account
- Interest in some partnership that includes specified foreign property
- Shares in a foreign company
- Real estates located outside of Canada
- Interest/units in offshore mutual funds
- Bonds, Funds, and other loans provided by a foreign government or foreign companies
- Interests in specific non-resident trusts
- Unused business debentures held outside of Canada
- Interest in a foreign insurance policy
- Valuable metal contracts outside Canada
- An interest in a foreign trust is acquired for consideration.
- Convertible property
Properties not to be Reported in the T1135 form
- A property for or intended for active business
- A share of the capital stock or obligation of a foreign partnership
- Foreign pension plans like a US IRA
- As stated in section 54, a personal-use property such as estates outside of Canada is proposed for personal use only.
- An interest in a trust as stated in paragraph (a) or (b) of the definition of exempt trust in subsection 233.2(1)
- An interest in or a right to obtain the excluded properties mentioned above
- Specified foreign properties where the taxpayer has received a T3 or T5 for a particular year
Reporting Foreign Income on the T1135 Form
There are currently two methods of reporting foreign income on the T1135 form. They include the simplified method and the exact method.
The simplified method is suitable for individuals that their foreign properties are less than CA$250,000. For individuals with over CA$250,000, they’ll have to use the detailed method.
You can decide the method you fall under by ticking the appropriate box under the identification section in the T1135 form.
- Simplified reporting method
When reporting your foreign income, part A of the form has the list of all the specified foreign property you can report under this method. You can proceed to choose the type of property; multiple properties are allowed where applicable.
Proceed to input the countries’ codes of the top three countries based on the properties’ maximum cost. When filling this section, the CRA does not require the details of the properties’ cost value or current market prices.
The CRA needs you to report the gross income; this includes the rent, interest, dividend, etc., or the gain or loss amount if you’re selling the property.
- Detailed Reporting Method
Part B of the T1135 form contains the list of the type of properties in different tables. In this section, the CRA expects you to give detailed information on your property(s).
Reporting the information from the T1135 in your income tax return depends on whether or not the foreign property is producing income; income can be in the form of rent, interest, gain, etc. You do not have to report it if it is not generating income. All you’re required to do in this case is tick the box for foreign property in step 1 of your income tax return. Then proceed to file the T1135 separately.
However, if the foreign property(s) generates income, the CRA requires you to report the foreign income on your tax return’s related lines. You can use the worksheet to report dividends and interest on line 12100 and use Schedule 3 to report capital gains or losses.
The CRA attached a timeframe to when taxpayers can file their T1135. The due date of T1135 is the same as when your income tax return is due.
Filing the T1135 Form
You can file the T1135 online and offline. Through the online method, you can use EFILE or NETFILE. Alternatively, you can attach the T1135 form to your income tax return or partnership information return and mail it to your tax center.
You can send your T1135 form to this mailing address:
Winnipeg Taxation Centre
Data Assessment & Evaluation Programs
Validation & Verification Section
Foreign Reporting Returns
66 Stapon Road
Winnipeg MB R3C 3M2.
The certification section of the T1135 form should be completed and signed by the following:
- the person completing the form (applicable for individuals)
- An authorized officer (suitable for corporations)
- The trustee, executor, or administrator (appropriate for trust)
- An authorized partner (suitable for partnership)
Categories of specified foreign property in the T1135
The T1135 form contains seven tables associated with different categories of specified foreign property(s). You are to report to information of each property(s) possessed in the right category. Below are the seven categories and details you are to provide:
- Category 1 – the country where you owned the property(s)
- Category 2 – the country of residence of the non-resident corporation
- Category 3 – the country of residence of the non-resident issuer
- Category 4 – the country of residence of the trust
- Category 5 – the country where the property is located
- Category 6 – the country where the property is located
- Category 7 – the details you’ll input here depends on the type of property. You can use the instructions above from categories 1 to 6.
If you are unsure of the country code for a particular specified foreign property(s), you can choose “other.”
Penalties for Late Filing of T1135
The CRA will fine any defaulter who fails to file a T1135 CA$25 daily to a maximum of CA$2,500 yearly. If you fail to comply with the stipulated T1135 requirements, the CRA will extend the regular assessment period for any tax issue for a taxation year by three years.
The implication of this is that any linked income tax return for that year will not be statute-barred. It will take six years after the date of the original notice of assessment before it can be statute-barred. To correct this, you must submit the form(s) via the CRA’s Voluntary Disclosure Program.