Ask an Accountant: Foreign income verification

Francesca Giroux, CPA
For the Lakeside Leader

The Canada Revenue Agency (CRA) requires individuals, corporations and trusts that at any point during the year owned foreign investment property costing more than $100,000 to verify their foreign income by filling out Form T1135 Foreign Income Verification Statement every year. By filling out this form an individual does not increase their taxes or reduce their taxes owing as all income from foreign property should already be included on their personal tax return.

The types of property that must be reported on the T1135 include, but are not limited to: amounts in foreign bank accounts, shares in foreign companies, real estate situated outside of Canada, bonds issued by foreign governments or foreign companies, and other income-earning foreign property. Property that is mainly held for personal use or enjoyment such as a vehicle, vacation property, jewelry and artwork do not have to be reported on the T1135 as they are not considered to be a foreign investment property by the CRA. Personal use property has no reasonable expectation of profit to the owner.

Form T1135 is due on the same date as an individual’s personal tax return (i.e. April 30 or June 15 for proprietorships). It is important that if you are having your taxes prepared by a third party to inform them that you own foreign investment property greater than $100,000 so that they can prepare this form in conjunction with your personal taxes. If you are e-filing your personal tax return the T1135 must be mailed in separately to the CRA.

There are penalties for failing to file or late-filing the T1135. The penalty for failing to file is $25 per day for up to 100 days (the minimum penalty is $100 and the maximum is $2,500). If the failure to file is done knowingly or under circumstances amounting to gross negligence, the penalty is $500 per month for up to 24 months less any penalties already levied. After 24 months the penalty is 5% of the cost of the foreign property. Relief from penalties can be sought under the Voluntary Disclosure program provided CRA has not initiated contact in regard to the missing form.

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Information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CPA for information specific to your own needs.

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