Being the leader in annexing talents from all countries by offering the best immigration status to all types of citizens of international repute based on a merited scale, it is not a surprise that Canada Revenue Agency keeps an eagle eye on the global income of all Canadian resident taxpayers. Foreign Income Verification Statement T 1135 E whose format has been the same since 2015 is one of the indispensable forms. With a huge population of Canada being immigrants from India for ages, many of them with substantial income from India and other countries forget to file this form which results in huge penalties.

Form No. T 1135 E can be verified for learning purposes from the following website.

 https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t1135/t1135-19e.pdf

Instructions for filling up the form are annexed with the above form.

It is a six-page format, the first three containing Part A and Part B while the instructions follow the first three pages in another 3 pages which are detailed, various situations analyzed, and intended to be clearly understood while filling up the form. Failure to follow the instructions may result in huge penalties which will be discussed during this article.

What is so special about form T 1135 E and how is it constructed?

Discussion on above form

It is very important to learn that Completion and filing of this form is a must if at any time in the year the total cost amount to the reporting taxpayer of all specified foreign property was more than $100,000 (Canadian). If a decision has been made to use a functional currency, its functional currency code needs clear mention.

Let me narrate the form in simpler terms.

It starts with identification of details like whether individual, corporate, trust, or partnership is reporting this information. Additional information sought include the following:

  • In case of an individual, social insurance number, name or individual code are required.
  • In case of a corporation, its name and business number, and for a trust its trust account number are needed.
  • Partnership enlists its name, partnership code, and its partnership number.
  • The address of the entity, and the taxation year for which the form is filed will have to be reported.

After simple identification details, the form diverts into Part A, simplified reporting method and Part B detailed reporting method.

What is Part A and similarly Part B?

To quote from form T 1135 directly,

“If the total cost of all specified foreign property held at any time during the year exceeds $100,000 but was less than $250,000, you are required to complete either Part A or Part B;

 If the total cost of all specified foreign property held at any time during the year was $250,000 or more, you are required to complete Part B.”

Let us analyze Part A from the above form.

Being emphatic that the total cost of all specified foreign property held at any time during the year exceeds $ 1,00,000 but not less than $250,000, the following applies.

Page 1 of Part A leads us as under:

Each type of property applicable needs a ticking.

They type of property includes funds held outside Canada, shares of non-resident corporations, indebtedness owned by non-resident, interests in non-resident trusts, real property excluding personal use or used for active business use, and other property held outside Canada, or property held in an account with a Canadian registered securities dealer or a Canadian trust company.

Then note the country code like “I N D”, or “U S A”.

Then give the gross income from all specified foreign property and lastly, the gain or loss from the disposition of all foreign property specified.

Let us look at Part B titled “Detailed reporting method”

7 tables are contained in categories of specified foreign property.

1. Funds held outside Canada

2. Shares of non-resident corporations (other than foreign affiliates)

3. Indebtedness owned by non-resident

4. Interests in non-resident trusts

5. Real property outside Canada (other than personal use and real estate property

6. Other property outside Canada

7. Property held in an account with a Canadian registered securities dealer or a Canadian trust company

Page 2 contains details of above categories which help the tax authorities to get the genuineness of your financial dealings outside Canada.

Canada, the number 1 country inviting the best talents of the world is forced by the current opening of all types of accounts in tax havens and avoiding the illegal transfer of profits there instead of paying due share to Canada to have a thorough scrutiny of above form.

The penalty for non-submission of this form is very huge as we could see from the information.

Penalties for non-submission of T 1135 Form.

Proper website link is given below:

https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/questions-answers-about-penalties.html

Question 1

What will happen if one leaves Canada, after enactment of rules for submission of forms and fails to file them?

If a person becomes liable for these penalties and doesn’t pay the amount owing, CRA will start the usual collection action.

Question 2

Is each information return that isn’t filed subject to the maximum penalty of 5% of the amount to be reported?

  • The penalty for non- filing of any of foreign reporting return is greater of $100 or $ 25 per day from the date the return is overdue with a maximum of $2500.
  • In case of intentional and amounting to gross negligence, the penalty for non-submission of forms (except T1142) is $500 per each month that the return is due with a maximum of $12000, less any penalties already paid.
  • If CRA has issued a demand and still knowingly or under circumstances which may be termed as gross negligence, the penalty goes up to $1000 per month with the maximum touching $12000.

If gross negligence extends more than 24 months, an additional penalty is imposed as either 5% of the cost of the property, the cost of the shares, and the indebtedness of the foreign affiliate; or 5% of the fair market value of the property transferred or loaned to the non-resident trust. The penalty gets waived for form T1134 or T 1141 if the taxpayer can prove that he/she could not get the required information but filed it within 90 days after obtaining the same. Obviously, the request should go to CRA for waiving of penalty.

Some in depth instructions from CRA will aptly clear the learning curve.

What property the taxpayer must report? (Direct from the website)?

  • “Funds or intangible property (patents, copyrights, etc.) situated, deposited, or held outside Canada.
  • tangible property situated outside of Canada.
  • a share of the capital stock of a non-resident corporation held by the taxpayer or by an agent on behalf of the taxpayer.
  • an interest in a non-resident trust that was acquired for consideration, other than an interest in a non-resident trust that is a foreign affiliate for the purposes of section 233.4 of the Act.
  • shares of corporations’ resident in Canada held by you or for you outside Canada.
  • an interest in a partnership that holds a specified foreign property unless the partnership is required to file Form T1135.
  • an interest in, or right with respect to, an entity that is a non-resident.
  • 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; and
  • precious metals, gold certificates, and futures contracts held outside Canada.”

Discussion

Why does this detailed information be given by CRA?

Like your mind, I agree with you that “All Canadian resident taxpayers (including non-resident trusts deemed resident in Canada by section 94 of the Act) are required to file the Form T1135, Foreign Income Verification Statement if at any time in the year the total cost amount of all specified foreign property to the taxpayer was more than $100,000 (Canadian).”

Obvious inference guides one to have the calculation of all types of property identified, totaled, and confirmed that they are more than $100,000.

In U.S.A., many well known Indians remitted huge sums of money to their Indian accounts of banks and just failed to report in their FBAR statements. The known facts legally illumine the huge fines/legal punishments/other consequences for recalcitrant taxpayers.

Functional currency

If an election has been made under paragraph 261(3)(b) of the Act to report in a functional currency, all monetary amounts in that functional currency must be stated or otherwise, all monetary amounts in Canadian dollars need be mentioned.

 The codes for some functional currencies are as follows:

 AUD – for Australian dollar USD – for U.S. dollar GBP – for U.K. pound EUR – for Euro, IND – for Indian rupee.

While converting the foreign currency, the conversion rate must be at the time of purchase of the property or at the time the income was received. While reporting the highest vale of deposits, the rate easily verifiable must be used.

Some more relevant facts for consideration.

Tables

 Specified foreign property has been divided into seven (7) categories and should be reported in one of the tables as per form T 1135 and details of explanations table wise available on page 5 of form under discussion.

The following statement from page 5 indicates the importance of properties held by Canadians migrated from India and ignorantly ignored for reporting purposes.

“5. Real property outside Canada Report all real property located outside of Canada other than real property used in an active business or used primarily for personal use (such as a vacation property used primarily as a personal residence). Rental property outside Canada should be included in this category.”

How to identify individual/partnership information?

“Reporting individual/partnership identification

 For individual code, tick: 1. If the individual or the individual’s spouse (common-law partner) is self-employed. 2. If the individual and the individual’s spouse (common-law partner) are both not self-employed.

For partnership code, tick: 1. If end partners are individuals or trusts. 2. If end partners are corporations. 3. If end partners are a combination of 1 and 2 mentioned above. An end partner is the final recipient (corporation, trust or individual) that receives an allocation of income from the partnership after the income has flowed through the various levels of a tiered partnership.”

What is its importance?

Many Indians continue to be partners, major share holders or controller of accounts in India for frequent remittance of funds or as explained even the partners can be corporation, trust, or an individual.

Some of the popular ways of remittance is creation of an exclusive trust that will periodically remit funds from outside of Canada but legal formalities of both Indian/Canadian taxation rules are ignored.

Let us delve more.

What is the due date for filing this form?

Form T1135 has to  be filed on or before the due date of income tax return or, in the case of a partnership, the due date of the partnership information return, even if the income tax return (or partnership information return) is not required to be filed.

Certification

This form needs to be completed, and signed by:

The person filing this form in the case of an individual.

An authorized officer in the case of a corporation

The trustee, executor, or administrator in the case of a trust or

An authorized partner in the case of a partnership.

Now, how to file this return?

In simple terms, the return can be filed electronically, either E File or Net file.

For all type of taxpayer, the following rules are applied.(form T 1135)

Type of taxpayer E file or Net file Since when
Individual Both 2017 onwards
Corporation E file 2014 onwards
Partnership Both 2017 onwards
Trust E file 2021 onwards

Alternately, paper returns can be submitted to the following address:

Winnipeg Taxation Centre Data Assessment & Evaluation Programs Validation & Verification Section Foreign Reporting Returns 66 Stapon Road Winnipeg MB R3C 3M2.

Conclusion

With the global phenomenon of diversion of profits to tax havens or avoiding tax to relevant authorities is nothing unusual but Canadian tax officials with decades of experience and after study of millions of tax returns with the upgradation of technology and cooperation among the rule based civilized nations have developed more digital ways of catching tax dodgers.

My coverage of this topic is to warn Indian immigrants to follow the rules of taxation on regular basis and avoid penalties, interest, or in severe cases, even withholding of passports.

Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

Author Bio

Qualification: Post Graduate
Company: subramanian natarajan cpa firm
Location: NEW DELHI, Delhi, India
Member Since: 09 May 2017 | Total Posts: 205
A banker with 27 years of experience, a CPA from USA with specialization in US taxation, individual, partnership, S corporation or LLC taxation etc View Full Profile

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