Resting squarely at the top of the second page of the T1 personal income tax return, sits a question. On the 2013 tax return the question read:
Did you own or hold foreign property at any time in 2013 with a total cost of more than CAN$100,000? See “Foreign income” section in the guide for more information.
If yes, complete form T1135 and attach it to your return.
This question began to appear back in 1996 when the government of the day was concerned about Canadians reporting their worldwide income.
The trouble with the question is that many don’t understand what it means.
Many of my clients have interpreted the question as asking only about real estate (i.e. real property). Others understand the question includes offshore investments but may not realize their actual exposure.
What The Question is Really Asking
The foreign property question is really asking you if you own any investments in foreign rental real estate, cash in banks outside of Canada, and loans to non-residents where the total cost of such property is $100,000 or more.
The question also includes shares of foreign companies even if they are held in a Canadian brokerage account.
That’s right. Those shares of Bank of America and Microsoft must be reported on form T1135 even if you have them in a Canadian brokerage account.
For 2013 only, there was a general exemption that allowed you to simply check a box indicating you had such shares in a Canadian brokerage account and would receive a T3 or T5. However for 2014, you will be required to report the cost, income and any gains on the form regardless of whether a tax slip is prepared.
Side Note: The foreign reporting requirement does not apply to any investments inside of registered plans (RRSP/TFSA) or to unit holders of Canadian mutual funds. The reporting rules do apply to Canadian corporations as well.
The Penalties Are Costly
If you don’t file the form by the due date (the same date your return is due), the penalties can be costly:
- Failure to file – $25/day (minimum $100 and maximum $2,500)
- Knowingly failing to file – $500 per month to a maximum of 24 months (maximum $12,000)
The penalties can apply to each year the form is not filed.
Assess Your Exposure
If you hold shares of foreign companies outside of your registered accounts, you may want to review your account statements and the cost of your investments in U.S. and other foreign companies. It’s best to identify the exposure and be aware sooner rather than later.