Column: Foreign income reporting changes

Financial expert Gabriele Banka warns of new form required to be filed called a T1135 with your tax return.

If any of you had foreign investments last year you would have noticed that there was a new requirement to file form T1135 with your tax return.

This form was required if the cost of your investments were more than $100,000 any time in the year whether or not the investments were controlled through a brokerage firm or individually or whether they were held corporately or personally.

Some examples of the investments that needed to be reported were bank accounts, securities (including Canadian securities), rental property, any interests or trusts in a non-resident corporation, any foreign loans and any derivatives or options

There are also some exceptions such as property used in an active business, transactions involving a foreign affiliate, personal use items, inherited items and some other unusual items.

This form was due to be filed the same day that your tax return was due.  If you were an individual, it would need to be filed by April 30, or if you were a sole proprietor by June 15, or for any other kind of business entity the date that your businesses taxes were due.  Unfortunately, there was no means of filing this form electronically, so it needed to be mailed in.

If you didn’t file this form for 2013, you could face a penalty of $25 per day up to a maximum of $2,500 and possible additional penalties if gross negligence was proved.

Also the statute barred period is increased to an additional 3 years, so you could face an audit of up to six prior years.  You still have the option of filing under the voluntary disclosure program.

This requirement was revised in the March 21, 2013 budget, however, it was not made any easier. On the contrary, the budget requires that even more detail be provided.

The current requirements are that you now have to disclose each investment separately and give a description of the property, its country code, the maximum cost at any time during the year and the cost at the end of the year and any income/gain/loss on disposition.

There were some transitional rules, exceptions and extensions granted for the 2013 filing that have now been removed.  You now need to disclose the aggregate fair market value of property held in registered securities by country whether or not the T3 or T5 has been issued.

There continue to be some issues with the filing of this form that are under discussion between the accounting and governing bodies. One of the major ones is what if we run out of time? Can we estimate? And if we do estimate and amend the return later, is that an admission that the first filing was inaccurate and could that expose the client to penalties?

Be forewarned that if you own foreign investments that have a cost greater than $100,000, you may be facing an increased tax bill due to the increased work required as a result of the change in these requirements.

Gabriele Banka is a CPA, CGA and the owner of Banka & Company, Certified General Accountant. She can be reached at info@bankaco.com or 250-763-4528.