Foreign Assets and Income Verification Statement (T1135)

Who has to report?

Form T1135, Foreign Income Verification Statement, must be filed by:

• Canadian resident individuals, corporations, and certain trusts that, at any time during the year, own specified foreign property costing more than $100,000

• certain partnerships that hold more than $100,000 of specified foreign property

What property has to be reported?

Specified foreign property is defined in subsection 233.3(1) of the Income Tax Act and includes:

• funds or intangible property (patents, copyrights, etc.) situated, deposited or held outside Canada

• tangible property situated outside Canada

• a share of the capital stock of a non-resident corporation

• shares of corporations resident in Canada held outside Canada

• an interest in a non-resident trust that was acquired for consideration

• an interest in a partnership that holds a specified foreign property unless the partnership is required to file Form T1135

• a property that is convertible into, exchangeable for, or confers a right to acquire a property that is specified foreign property

• a debt owed by a non-resident, including government and corporate bonds, debentures, mortgages, and notes receivable

• an interest in a foreign insurance policy

• precious metals, gold certificates, and futures contracts held outside Canada

Specified foreign property does not include:

• a property used or held exclusively in carrying on an active business

• a share of the capital stock or indebtedness of a foreign affiliate

• an interest in a trust described in paragraph (a) or (b) of the definition of exempt trust in subsection 233.2(1)

• a personal-use property as defined in section 54

• an interest in, or a right to acquire, any of the above-noted excluded foreign property

Do I have to report foreign personal-use property on Form T1135?

No, you do not have to report personal-use property. This includes vacation property that you use primarily as a personal residence (see real property questions below) and listed personal property such as works of art, jewelry, rare folios, rare manuscripts, rare books, stamps, and coins.

Filing deadline

Individuals, corporations and trusts – Form T1135 is due on the same date as the income tax return.

Partnerships – Form T1135 is due on the same date as the partnership information return under section 229 of the Income Tax Regulations (or what would be the due date for this return if the partnership had to file one).

Is the $100,000 threshold based on the fair market value of the property?

No, it is based on the cost amount. The cost amount is defined in subsection 248(1) of the Income Tax Act and generally is the adjusted cost base and not the fair market value.

How do I determine the cost amount of foreign property acquired by way of gift, bequest, or inheritance?

The cost amount of foreign property acquired by way of gift, bequest, or inheritance is its fair market value at the time the gift, bequest, or inheritance was received.

Are shares of non-resident corporations held through a broker (Canadian or foreign) specified foreign property?

Yes. Shares of non-resident corporations are specified foreign property and should be reported, regardless of whether the shares are held through a broker.

Does a day trader have to file Form T1135?

Property that is used or held exclusively in the course of carrying on an active business is not required to be reported on Form T1135.

The determination of whether the activities of day trader constitute carrying on an active business is a question of fact that can only be determined on a case-by-case basis.

If an individual owns a condominium in Florida that has a cost amount of $120,000, is the property specified foreign property for the purposes of Form T1135 if the condominium is:

1. used exclusively by the taxpayer as a vacation property?

2. rented out for eight months of the year with a reasonable expectation of profit and kept for personal use the other four months?

3. rented out for part of the year without a reasonable expectation of profit for the purpose of recovering a portion of condominium expenses?

Specified foreign property does not include personal-use property. Personal-use property is generally defined as property owned by the taxpayer that he or she or a related party uses primarily for personal or enjoyment purposes. The CRA takes the view that "primarily" means more than 50%. Whether a particular property is primarily for personal use or enjoyment is a question of fact that is determined on a case-by-case basis.

In situation (a), the individual does not need to report the condominium since it is held primarily for personal use or enjoyment.

In situation (b), the property is not held primarily for personal use or enjoyment. As a result, it is a specified foreign property and has to be reported on Form T1135.

In situation (c), if there is no reasonable expectation of profit and the individual is merely recovering part of the condominium expenses, the CRA will consider it a personal-use property. As such, the property is not a specified foreign property and is excluded from the reporting requirements of Form T1135.

Are there penalties for failure to file Form T1135 or for omitting any information on the form?

Certain penalties apply for failing to file Form T1135 by the reporting deadline and for making a false statement or omission about the required information. For more information, go to Table of penalties.

Relief can be granted from these penalties under the taxpayer relief provisions upon written request from the taxpayer. Each request is considered on its own merit and circumstances. See Form RC4288, Request for Taxpayer Relief for more information.

Can I file Form T1135 electronically?

Individuals can file Form T1135 electronically (EFILE or NETFILE) for the 2017 and later tax years. Corporations can EFILE Form T1135 electronically for the 2014 and later tax years. Partnership can file Form T1135 electronically (EFILE or NETFILE) for the 2017 and later tax years.

By filing electronically, you will receive a confirmation number at once to tell you that the Canada Revenue Agency (CRA) has received your form. If you receive a confirmation number, please keep it for your records.

Trusts can EFILE Form T1135 electronically for the 2021 and later tax years.

Can I electronically file Form T1135 for previous periods using the current version of the form?

No. However, individuals can file Form T1135 electronically using tax software starting with the 2017 tax year. For years before 2017, the form has to be paper filed. Corporations can EFILE Form T1135 electronically for the 2014 and later tax years. However, for the years before 2014, the form has to be paper filed. For more information, see Can I use the simplified reporting method to file my prior period returns? and Can I amend my previously filed return and use the simplified reporting method?.

How does the CRA check foreign income?

You may be wondering how the CRA ensures compliance when it comes to your foreign property and income. It turns out, they definitely have their ways! Here are a few:

• Army of auditors. In recent years the CRA has invested in hiring more experts to scrutinize tax filings. More auditors means more eyes checking the tax numbers.

• Wealth watch. The CRA keeps a keen watch on high-net-worth Canadians. (After all, everyone should be paying their fair share.)

• Tax-scheme busters. Some taxpayers try to sweeten their finances with dubious tax schemes. The CRA actively targets schemes that are designed to evade or aggressively avoid taxation.

• Data-driven detection. Leveraging data through high-end analytics lets the CRA better identify who might be hiding income outside of Canada

Are there penalties for failure to file Form T1135 or for omitting any information on the form?

Certain penalties apply for failing to file Form T1135 by the reporting deadline and for making a false statement or omission about the required information. For more information, go to Table of penalties.

Relief can be granted from these penalties under the taxpayer relief provisions upon written request from the taxpayer. Each request is considered on its own merit and circumstances. See Form RC4288, Request for Taxpayer Relief for more information.

If you have any questions, contact us for a free consultation. Thank you!