Offshore Bank Accounts and the Voluntary Disclosure Program
If you have an offshore bank account that holds more than $100,000 CDN, or many bank accounts that total $100,000 CDN, the Canada Revenue Agency wants to know.
Choosing to disclose this to the CRA is always hard, especially when you lack understanding of why you’re doing so. This is commonly the case with Taxpayer’s who posses offshore assets and property and need to file the T1135 form. However, even with this confusion on filing, the time to come forward is still as pressing as ever. This is because, the start of action against the Taxpayer with undisclosed offshore accounts and assets invalidates their ability to qualify under the Voluntary Disclosures Program.
As a result of this, Canadian Taxpayers with offshore accounts and assets have a small window of opportunity to start the disclosure process. This disclosure allows the Taxpayer to avoid the risk of gross negligence penalties, and the interest that will accrue on those penalties.
T1135 Offshore Reporting Form
The T1135 is required to be submitted by Taxpayers with foreign property which exceeded either the fair market value of $100,000 in a given taxation year, or the cost base exceeds the same number. Where a taxpayer has failed to file the form previously but was required to do so, it must be filed in conjunction with the above Voluntary Disclosure Program to properly avoid interest and penalties for gross negligence.
- To enhance compliance with tax laws that require reporting of foreign-source income;
- To increase Taxpayers’ awareness of these laws;
- To provide information to the CRA for the purpose of verifying Taxpayers’ compliance with these laws; and
- To better target international tax evasion and aggressive tax avoidance.
T1135 – What Property Must be Reported?
The Taxpayer must report all “specified foreign property”. As well, the main criteria for reporting such property is $100,000 worth of such property in total. However, it should be noted that the $100,000 threshold is based on the cost of the property to the Taxpayer, not the current fair market value. Also, the form was updated as of May 16th, 2016 to incorporate a two-tiered information reporting structure.
The new tier, or “simplified reporting method” will apply to Taxpayers who held specified foreign property with a total cost amount of less than $250,000, throughout the year. This method will allow those individuals to report faster as less detail for each such specified foreign property is required. As well, individuals who want to disclose under this method can take advantage of E-filing their T1135 for the 2014 and subsequent taxation years.
Subsequently individuals who have more than $250,000 worth of specified foreign property must use the original, more detailed approach, and paper file the T1135. Thus, you must either attach it to your paper-filed tax return (or partnership information return), or submit it separately, and send it by the filing-due date.
T1135 – Deadline
For individuals the T1135 is due on the same date as the income tax return. Also, if you require additional space you may attach a schedule to your form. Please note that the schedule must be in the identical format as the tables on Form T1135.
T1135 – What is Specified Property?
In order to avoid penalties, whether in the simplified method or the more detailed reporting approach, the Taxpayer must disclose Specified foreign property. Specified foreign property is defined in subsection 233.3(1) of the Income Tax Act and includes:
- Funds or intangible property (patents, copyrights, etc.) situated, deposited or held outside Canada;
- Tangible property situated outside Canada;
- A share of the capital stock of a non-resident corporation;
- Shares of corporation’s resident in Canada held outside Canada;
- An interest in a non-resident trust that was acquired for consideration;
- An interest in a partnership that holds a specified foreign property unless the partnership is required to file Form T1135;
- 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; or
- Precious metals, gold certificates, and futures contracts held outside Canada.
There are significant penalties that may be applicable for failure to file Form T1135 by the reporting deadline, or for making a false statement or omission with respect to the required information. If you are interested in using the Canada Revenue Agency’s Voluntary Disclosures Program to correct past errors or omissions for foreign property in your Canadian tax filings, please contact Rosen Kirsten Tax Law to ensure your privileged disclosure is handled correctly. We are here to help!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.