For the 2013 tax year the Canada Revenue Agency released a revised Form T1135 to report specified foreign property where the cost amount exceeded Cdn$100,000 at any time in the year. This revised form requires detailed reporting of each foreign property as opposed to the simplistic and aggregated reporting information historically provided. We previously highlighted the changes to this form in an earlier blog titled New Foreign Income Reporting Requirements for Canadian Taxpayers: An Update.
A particular aspect of the revised form which has raised a lot of questions involves the requirement that a taxpayer consider the foreign holdings held in an account with a registered Canadian securities dealer. While conventional wisdom might suggest that if a taxpayer holds a foreign security in a Canadian brokerage account no reporting should be necessary as the annual T5 reporting package would highlight the foreign income to be reported. However, there is no formal exemption from the reporting of such foreign holdings except by way of administrative process which the CRA may provide.
The CRA has indicated that where the income from a particular foreign holding is reported on a Canadian T5 or T3 slip (for example, dividends from a foreign corporation), then this individual holding will not be required to be specifically disclosed. This administrative reporting exception may appear to provide a blanket exemption from reporting, however, careful consideration would identify holdings which would not be exempt. Examples would include:
- Foreign stock which does not pay a dividend (for example, many high-tech companies),
- Foreign stock acquired after the last dividend payment in the calendar year, or
- Foreign stock sold before the first dividend payment in the calendar year.
A taxpayer would need to review each and every holding owned at any time in the year to determine if the administrative reporting exception would apply. We understand that representatives from several Canadian financial institutions approached the Canada Revenue Agency to request a relaxation of the reporting requirements for non-Canadian holdings held within a registered Canadian securities dealer to help reduce the information reporting burden.
For the 2013 tax year only, a taxpayer may report the combined fair market value at the end of the year (as opposed to “cost amount”) of all property in Category 6 of the form that is held in a Canadian registered securities dealer account rather than report property individually. Please note that where non-Canadian securities are held at a non-Canadian securities dealer, this administrative reporting exemption will not apply and the necessary detailed reporting must be undertaken.
In response to feedback on the complexity of the enhanced reporting requirements, the CRA has granted a one-time filing extension for the 2013 Form T1135 to July 31, 2014.
Taxpayers with a 2013 T1135 filing requirement must be aware that the form is still not available for electronic submission and must be mailed by the revised 2013 filing due date. The penalty for late or incomplete submission remains at C$25 per day up to a maximum of C$2,500.
As you prepare the 2013 form, carefully consider your holdings at both Canadian and non-Canadian financial institutions.
Written by Albert Lui and Daren Raoux, CA, CPA