Whether you’re preparing your personal tax return for 2014, or having a tax professional do it for you, there’s a possibility you might be lying to Canada Revenue Agency (CRA). It’s so easy to skip, or say ‘No’ to the question on the information page – Did taxpayer own foreign property at any time in 2014 with a total cost of more than CAN $100,000? Foreign property is not limited to real property such a condo in Florida that you use for personal and rental purposes.
Specified Foreign Property (SFP) includes:
- Shares in foreign companies, even if held in a Canadian brokerage
- Amounts in foreign bank accounts
- Interest or units in offshore mutual funds
Property Not Included in SFP includes:
- Property held in registered accounts such as RRSPs or TFSAs
- Property used mainly for personal use i.e. vacation property, artwork, jewellery, boat
For examples of SFP see CRA website examples by clicking here.
If at any time in 2014 you owned SFP with a total cost exceeding $100,000 you must report it on the form T1135. If you have property close to the $100,000 amount in U.S. funds, you must convert that value into Canadian Funds which could cause you to exceed the $100,000.
Total cost refers to the adjusted cost base and not the fair market value. If you purchased a Florida condo in the year 2001 for $150,000 when prices were higher, but the property is now valued under $100,000 you must report it, if it’s not used for personal use solely.
This is an onerous task as you must also break down the specified foreign property by the country where the SPF is located. If you have shares of foreign corporations held with your Canadian brokerage accounts in the United States, Brazil, Hong Kong, etc., some of the details required in reporting are:
- Maximum cost of the SFP during the year,
- Cost of the SFP at year end,
- Amount of income (or loss) related to the SFP,
- Amount of any new capital gains (or losses) realized on the disposition of the SFP.
Penalties for Failing to File a T1135
The penalty for failing to file a T1135 return is $25 per day for up to 100 days (minimum $100 and maximum $2,500) for each year. When failing to file is done knowingly or under circumstances amounting to gross negligence, the penalty is $500 per month for up to 24 months (maximum $12,000), less any penalties levied. There are additional longer term penalties that you can look up if applicable.
Voluntary Disclosure Program (VDP)
If you determine you should have said ‘Yes’ to the SFP question on the information page of your tax return you may still have time to correct the problem. Under the VDP you can voluntarily correct inaccurate, incomplete, or unreported information, and do so without penalties or prosecution, if a valid disclosure is made to Canada Revenue Agency (CRA). To be a valid disclosure it must include all 4 of the following conditions:
- Must be voluntary
- Must be complete
- Must involve the application or potential application of a penalty, and
- Must include information that is more than one year overdue.
It will not be considered a voluntary disclosure if you know the CRA has already contacted you with a request for information that would uncover the information to be disclosed. If CRA accepts the disclosure as valid, taxes and interest will still be payable. The relief will be in the penalties that you do not have to pay.
I would be interested in hearing from you if you have questions, need assistance or have attempted to gather the information required to complete the form, and what challenges you had in that process, and completion of the T1135.
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Until next time,