In June 2013 the CRA released a new version of Form Form T1135 that was required to be filed by taxpayers for 2013 and later years. The requirements for filing remained the same, but the detail that is required to be reported increased significantly.
Form T1135 must be filed by all Canadian-resident taxpayers that hold/held specified foreign property whose cost exceed $100,000 at any time during the tax year. The penalties for failing to properly file this form are significant.
The new form included several substantial changes from the old form and requires significantly more detail relating to each of the taxpayer’s specified foreign property.
The change that appeared to affect most taxpayers was the requirement to individually list all of a taxpayers foreign securities.
There was some relief offered if the taxpayer received a T3 or a T5 from a Canadian issuer for the foreign security. The taxpayer could simply check the box on page one of the form indicating this.
However, if the security was not reported on a T3 or T5 (i.e no investment income was earned) or was held in a foreign account, the taxpayer would be required to list each individual security and report the maximum cost of the security during the year, the cost amount at year end, the income or loss and any gain or loss on disposition.
This change to the form created a lot of extra work for the taxpayer and the adviser because they would have to match the foreign securities reported on the T3 or T5 to the foreign securities held in the account. Any foreign securities that were not listed on the T3 or T5 would then need to be disclosed as previously described above.
As a result of the substantial increase to the detail of information that was required to be reported on the new T1135, the CRA faced significant backlash from taxpayers and their advisers.
Due to this backlash, in August of 2014 the CRA made some revisions to the new T1135 for 2014 and later tax years.
The most notable change that they made was the removal of the T3 or T5 option and the ability to report, on a country by country basis, the aggregate balance of the specified foreign property held in an account with a Canadian registered securities dealer.
The taxpayer is now required to report the highest fair market value during the tax year, the fair market value at the end of the year, the total income or loss earned during the year and the total gain or loss from all dispositions during the tax year.
Despite their attempt to reduce the amount of work required to complete this form, for certain taxpayers the amount of information that is required to be disclosed remains significant.
For example, if a Canadian taxpayer has an investment account with a U.S. bank (ex. Wells Fargo) the taxpayer is required to disclose the following for each security held in the account: the maximum cost during the year, the cost amount at year end, the income or loss earned during the year and any gain or loss on disposition.
For many taxpayers who are required to file Form T1135, the burden of information that they are required to dig up and report remains significant. Please contact one of our qualified advisers if you have any questions or require any assistance in preparing this form or any other tax matter.