Are you aware of the penalty for the non-reporting of your foreign properties? Every Canadian should know who either owns or intends you own assets in foreign countries which is more than $100,000 in Canadian dollars.
As a professional accountants, we have been guiding and informing our clients about the foreign properties reporting requirement on the Canadian tax return. The requirement is aimed at ensuring that all Canadian residents who own foreign properties worth more than $100,000 disclose this information to the Canada Revenue Agency (CRA).
When it comes to foreign properties, the CRA requires disclosure of various types of assets, including real estate, bank accounts, and investments held outside of Canada. The information that needs to be reported includes the type of asset, the country in which it is held, and the value of the asset in Canadian dollars.
You were the owner of $100,000.00 or more of the specified foreign properties held outside Canada at any time during the year. You need to report the details of your assets and any income or gain/loss on your individual income tax and benefit return.
Usually, this reporting requirement question is essential for the individual or a foreign entity that just landed or started their business in Canada. If you are an online trader investing in stocks, your security dealer or the bank will provide a report after the end of the year, which you can look into or share with your tax consultant.
As a resident of Canada for tax purposes, you need to report your worldwide income to your Canadian income tax return irrespective of the above limitations on the specified foreign properties. The limit on the specified foreign property is an additional reporting requirement, and it will apply when you exceed the above threshold.
It is important to note that the reporting requirement applies to both individuals and corporations. Failure to disclose foreign property information on the tax return can lead to penalties, fines, and even criminal charges.
Why is this important?
An individual may be penalized up to $2,500.00 per year for the failure to report. The penalty may range from $100.00 to $24,000.00 or even more depending on your situation for failure to report. Please refer to the penalty section below in this article for further details of various penalties.
Who must report?
What is Specified Foreign Properties?
The specified foreign properties held outside Canada has been defined in subsection 233.3(1) of the Income Tax Act of Canada and includes:
What do you need to report?
The above reporting is done in Canadian currency; hence you will need to convert the values in foreign currencies to the Canadian dollar. You can use the exchange rate when you hold the maximum funds at the end of the day; however, you may apply the average exchange rate for the month or year if this is not available. You will use the exchange rate at the end of the day for reporting balance, cost, or value at the end of the year.
However, the above reporting has been simplified for those who was the owner of specified foreign assets for more than $100,000.00 but less than $250,000.00. Hence if your total maximum cost of specified foreign assets held at any time during the year was less than $250,000.00 but more than $100,000.00, then you have the option to report under the “Simplified reporting method” or “Detailed method.” Under the “Simplified reporting method,” the following needs to be reported.
You need to certify that the information provided in the report is correct, complete, and fully disclosed to your best knowledge. You also need to provide the name of the person preparing this report unless you have prepared the report yourself.
What are properties excluded from Specified Foreign Properties?
You need to report as applicable above details on form T1135 and attach that to your income tax return. The due date of this reporting is the same as your income tax return filing deadline.
You can report the specified foreign properties on the appropriate form and will be able to file it electronically with Canada Revenue Agency. In case of any error or omission, you have the option to file an amended return with the Canada Revenue Agency.
What are the penalties if I fail to comply with this?
Failure to comply with form T1135 for Foreign Income Verification Statement for self – for failing to file a return, the penalty is $25 per day for up to 100 days (minimum $100 and maximum $2,500).
Failure to furnish foreign-based information on form T1134 relating to Controlled and non-controlled foreign affiliates – the penalty is $500 / month for up to 24 months to a maximum of $12,000, less any penalties already levied where the failure to file is done knowingly or under the circumstances amounting to gross negligence. This penalty is not applicable to Form T1142.
Failure to furnish foreign-based information on form T1141 relating to Controlled and non-controlled foreign affiliates – the penalty is $1,000/month for up to 24 months to a maximum of $24,000, less any penalties already levied, when the person or partnership knowingly or under the circumstances indicating to gross negligence fails to comply with the demand to file a return is issued by the Canada Revenue Agency under subsection 233(1). This penalty is also applicable to Form T1142.
Additional penalty – After 24 months, the penalty turns into 5% of the cost of the specified foreign property. The fair market value of the specified foreign property transferred or loaned to the trust, or the cost of the shares (capital stocks of corporations) and indebtedness of the foreign affiliate, whichever of the following resulted in the requirement to file the information return, less any penalties already levied. This penalty is not applicable to Form T1142.
Form T1142 is the information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust.
Suppose you know that the above penalties may apply to you, and you are fortunate enough that Canada Revenue Agency has not yet approached you regarding the above. In that case, you have the option to go forward and approach the Canada Revenue Agency for relief under the “Voluntary Disclosures Program.” You are advised to contact our firm or your tax consultant.
As your accountant, I can help you ensure that your foreign property information is accurately reported on your tax return. This includes identifying which assets need to be disclosed, determining their value in Canadian dollars, and completing the necessary reporting forms.
If you have any questions or concerns about foreign property reporting requirements, please don’t hesitate to ask. It’s important that we work together to ensure compliance with Canadian tax laws and regulations.
Related Topic: Foreign Affiliate Reporting
RKB Accounting has expertise in cross-border taxation and has been providing accounting and taxation services for the last fifteen years in Canada and USA. RKB services include incorporating a business on both sides of the border, bookkeeping, sales tax, payroll, and corporate and personal income tax. RKB’s expertise includes cross-border tax planning, long-term tax planning, helping business start-ups, business structure planning, and resolving complex tax matters. RKB a CPA(Delaware), CA(India), and CIA(USA) has over 25 years of experience in accounting and taxation in dealing with various countries in the world.
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.