Foreign Asset Reporting - Form T1135 Foreign Income Verification Statement
Income Tax Act s. 233.3
When foreign investment property (specified foreign property) or properties with a total cost amount (usually the adjusted cost base, not fair market value, but see below re depreciable property) of more than $100,000 Canadian is owned at any time in the year, form T1135, Foreign Income Verification Statement, must be filed. This form must be filed by Canadian resident individuals, corporations and trusts, as well as many partnerships.
When your tax return is filed, on a personal tax return you must answer the question "Did you own or hold foreign property at any time in the year with a total cost of more than CAN$100,000?" On a corporate tax return (page 3 of the T2) the question is whether the corporation owned foreign property at any time in the year with a total cost of more than CAN$100,000. If the answer to this question is Yes, then form T1135 must be completed. For 2014 and 2015, individuals can file form T1135 electronically. Starting May 16, 2016, corporations can Efile Form T1135 for the 2014 and later taxation years.
It is important to ensure that this form is filed as required, as the penalties are onerous! If you are using an accountant to do your taxes, make sure that this form is filed - you the taxpayer are ultimately responsible to ensure that your taxes are filed correctly, even when you are paying someone else to do them for you!
This form is required for taxation years starting after 1997. If this form should have been filed for previous years but was not (perhaps you or the person doing your taxes missed doing it), you may be able to do a Voluntary Disclosure, and thus avoid penalties. Canada Revenue Agency (CRA) indicated in Technical Interpretation 2015-0572771l7 from September 2015 an assessment of a penalty for a late-filed T1135 must be made within the normal reassessment period, meaning that it would not be necessary to file a full 10 years when using the Voluntary Disclosure route. See the article on Voluntary Disclosure to determine if you qualify.
Form T1135 was revised for the 2014 taxation year, and simplified for the 2015 taxation year for some taxpayers.
For 2015 and later taxation years, if the total cost of a taxpayer's specified foreign property is less than $250,000 throughout the year, the taxpayer can report these assets to CRA under a new simplified foreign asset reporting system. The current reporting requirements will apply to taxpayers with specified foreign property that has a total cost of $250,000 or more at any time during the year. See Streamlining Reporting Requirements on the 2015 Budget website, and T1135 Foreign Income Verification Statement on the CRA website. The detailed reporting method must still be used by taxpayers with specified foreign property with a total cost of $250,000 or more at any time during the year.
With the simplified method, the taxpayer must indicate:
- with a tick mark on the form, the type
Individuals can file the form electronically for the 2015 taxation year. The T1135 for a corporation cannot yet be filed electronically with the tax return, but must be sent by mail. It can be attached to the tax return or partnership information return, and mailed to your tax centre, or can be mailed separately to the Ottawa Technology Centre. The address of the Ottawa Technology Centre is on the T1135 form.
The T1135 is a fillable form which will expand if more rows of input are required.
The due date for 2015 for the T1135 is the same as the due date for your personal or corporate income tax return.
Specified Foreign Property
Foreign investment property that must be reported on the T1135 includes:
If the total cost of all the above properties owned at any time of the year exceeds $100,000, then the T1135 must be filed, reporting all specified foreign properties held during the year, even if some or all of the property was sold before the end of the year. If two people are joint owners of specified foreign property, they would determine if the $100,000 has been exceeded based on their share of the cost amount of the property. With property such as real estate, it is important to remember that if capital improvements are made to the real estate, thus increasing the cost amount above the $100,000 limit (in Canadian $), then a T1135 will have to be filed.
Property Not Included in Specified Foreign Property
Foreign investment property does not include:
No clear guidance has been provided by CRA regarding put options which have been sold. However, the seller of a put option has an obligation to purchase a property at the option of the buyer. Since the sale of a put option does not confer on the seller the right to acquire a property, it is logical that this would not be included as specified foreign property. The same treatment would logically apply to short sales, which also confer an obligation, not a right.
Where the specified foreign property is depreciable property, as per s. 248(1) of the Income Tax Act, the cost amount is the undepreciated capital cost (UCC) of the property.
Real Property Questions
If you are unsure if your real estate in a foreign country must be reported, see the Canada Revenue Agency (CRA) real property questions.
Canadian Companies Traded on Foreign Stock Exchanges
There are many Canadian companies traded on foreign stock exchanges. Make sure you don't include these as foreign investments. Just because an investment is held in a US$ brokerage account doesn't mean that it is a foreign investment. For instance, some people may want to hold Barrick Gold or Thomson Reuters in a US$ broker account because their dividends are paid in US$, although they are traded on the Toronto Stock Exchange (TSX) and are Canadian corporations. They are not foreign investments.
However, shares of a Canadian corporation which are held in a brokerage account outside of Canada are considered specified foreign property.
Foreign Companies on Canadian Stock Exchanges
There are also foreign companies listed on Canadian stock exchanges. TMX.com has a downloadable Excel workbook which includes 2 worksheets with lists of US Companies that are listed on the TSX and TSXV (TSX Venture Exchange). As of September 2014 there were 72 US companies on the TSX and 86 on the TSXV.
Tracking the Canadian $ Cost of Your Foreign Investments
In order to know whether the Canadian $ cost of your foreign investments exceeds $100,000 at any time in the year, you'll have to keep good records. If your foreign stocks are in a US$ brokerage account, you must keep records of the cost converted to Canadian $ using the US exchange rate from the Bank of Canada or Pacific Exchange Rate service (see our Links page). You will want to set up a worksheet (electronic or on paper) where you record these purchases using the Canadian $ cost, so that you can see at any date if your cost has exceeded $100,000. If you use a software program such as Quicken to track your stocks, investments held in a US$ account are shown in US$, but you can produce a report that will show the holdings in Canadian $. Make sure you are using Canadian currency for the report, and that "Transaction Exchange Rate" is ticked, in order to get the correct cost in Canadian $. This report should be done each time foreign purchases are made in a non-registered account, to check the total cost.
Tracking the Canadian $ Market Value of Your Foreign Investments With a Canadian Registered Securities Dealer
Once you're over the $100,000 Canadian $ cost of foreign investments which could be reported in category 7, you'll also need to know the maximum market value in Canadian $ during the year for your foreign securities with each securities dealer. As indicated previously, the maximum during the year may be based on the maximum month-end market value. On Form T1135 it indicates that the average exchange rate for the year should be used to calculate the highest market value during the year, and the year end exchange rate should be used for the year end market value. In order to complete the form easily each year, set up a worksheet (electronic or on paper) where you record the month-end market value in US$ during the year. Then at year end, apply the average rate for the year to each of these month-end values to determine the highest market value in Canadian $. For the year end value, use the year end exchange rate, to convert to Canadian $. You can get the average and year-end exchange rate for conversion from either the Bank of Canada or the Pacific Exchange Rate Service.
It is also acceptable to calculate the highest market value during the year by applying the month-end exchange rate to convert to Canadian $, or if your brokerage statements report the market value in Canadian $, to use those amounts. This is noted in the Q&A (question 71) for a webcast on T1135s presented through CPA Canada in November 2014, which is available at no charge to CPA members and non-members. Registration is required to view the webinar and the Q&A. For your convenience, we have a pdf of the November 16, 2015 update of the CPA Canada T1135 Questions and Answers.
Sometimes it is not evident what country code should be used for a foreign based trust or corporation. The instructions on the T1135 indicate that it is the country of residence. Logically, this would be the country where the business is based. As with American Depositary Receipts, If you are not sure of the country code, your brokerage should hopefully be able to provide this information.
American Depositary Receipts (ADRs)
One of the questions addressed in the above-mentioned T1135 webinar is the country code to use for ADRs, which trade on the US stock exchanges, but represent shares of a non-US corporation. The CRA response was "An ADR should be reported as a security of the underlying non-resident corporation in either category 2 or, if applicable, category 7. Where the residency of the underlying non-resident corporation cannot be determined after exhausting all reasonable efforts, it is acceptable to use "Other" as the country code." The country code should hopefully be able to be provided by your brokerage. If the information is not available from the brokerage, and you are not able to find the information elsewhere, the country code of "other" would be permitted. The country of the underlying security issuer can often be found in J.P. Morgan's ADR website.
Completing Form T1135 Foreign Income Verification Statement for 2014
Changes were made to the form for the 2014 and later taxation years. The transitional reporting method was revised slightly, allowing taxpayers to report aggregate amounts for foreign property held in an account with a Canadian registered securities dealer or a Canadian trust company, but on a country by country basis. This type of aggregate reporting is done in Category 7 on form T1135. See CRA links below for the list of country codes. The country code to be used for shares of a non-resident corporation is the country of residence of the corporation. For an investment in a US mutual fund trust that holds portfolio investments in several corporations that are resident in Europe and Asia, the US country code would be used.
When using category 7, the maximum market value during the year in Canadian $ held with each securities dealer must be reported on the T1135, as well as the market value at year end. The maximum during the year may be based on the maximum month-end market value.
If your stock portfolio doesn't change much during the year, it may be simpler to use categories 2 and 4 for shares of non-resident corporations and trusts. In these categories the maximum cost of the investments during the year is reported, as well as the year end cost, but not the market value. The maximum cost of each investment will be the highest adjusted cost base during the year.
Individuals can file the form electronically for the 2014 taxation year. The T1135 for a corporation cannot yet be filed electronically with the tax return, but must be sent by mail. It can be attached to the tax return or partnership information return, and mailed to your tax centre, or can be mailed separately to the Ottawa Technology Centre. The address of the Ottawa Technology Centre is on the T1135 form.
The T1135 is a fillable form which will expand if more rows of input are required.
The due date for 2014 for the T1135 is the same as the due date for your personal or corporate income tax return.
Completing Form T1135 Foreign Income Verification Statement for 2013 and Earlier Years
If all foreign investment properties owned have income that is reported on a T3 or T5, then the form is very easy to complete for 2013 - the T3/T5 reporting exception can be utilized for all the properties. The T3/T5 reporting exception is not available for 2014 and later years. If income from some of the properties is not reported on a T3 or T5, then detailed reporting is required for those properties. If some of the properties don't have income in the year, so there will be no T3 or T5 issued for them, then detailed reporting is required for those properties.
For the 2013 tax year, taxpayers are permitted to use a 2013 Transitional Reporting Method for foreign investment property held with a Canadian registered securities dealer. This allows the taxpayer to complete one line for each brokerage with which the foreign investment property is held. The maximum cost amount during the year is not required, and instead of the year end cost amount, the fair market value at year end is reported. Detailed instructions are in the fillable form. If you are not using the Transitional Reporting Method (2013 only) or the T3/T5 reporting exception, you must report on form T1135 all specified foreign properties held during the year, even if you sold any or all of the property before the end of the year. In any case, they are always included when determining if the threshold is exceeded.
The T3/T5 reporting exception cannot be combined with the Transitional Reporting Method. The 2013 form has detailed instructions for using the Transitional Reporting Method, which may not be available in the form which is in 2013 tax return software packages.
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Revised: June 17, 2016
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