If you hold foreign property in your non-registered brokerage accounts you’ll no longer have to collect mountains of information for your 2016 foreign property filing. Currently “if at any time in the year the total cost amount of all specified foreign property you own exceeded $100,000, you have to file Form T1135, the “Foreign Income Verification Statement.”
What exactly is a specified foreign property you ask? Well a specified foreign property includes funds held on deposit outside of Canada, foreign real estate, (other than personal residential real estate that isn’t income producing), and shares and debt of non-resident corporations, even if held in a Canadian non-registered brokerage account. Securities held in registered accounts like RRSPs, RRIFs, RESPs and TFSAs are exempt.
Now… what happens if you don’t file this….the penalty is pretty steep, in fact it’s $25/day up to $2500, BUT that amount can go even higher if you “knowingly” fail to file the form. Moral of the story from Revenue Canada, “ignorance is not an excuse”
All of this sounded pretty ominous originally, as the first roll-out of this form would have asked for mounds of data, and where would you go to search for it all…your accountant, a financial institution, your tax professional? It seemed a daunting task for most. (We honestly don’t even understand why Revenue Canada asks since they already gets information about foreign income paid to those accounts through the T3 and T5 reporting system and gets information about the disposition of securities through the T5008 reporting, but hey….who are we to question, lol)
But there is good news! A newly released “re-launch” has happened, thanks to some lobbying on behalf of we, the Canadian people. The new rule is called the transitional rule, and “boy oh boy” is this going to help!
Here’s the new rule:
If you held specified foreign property in an account with a Canadian registered securities dealer, you now simply have to report the combined fair market value of all such property at the end of the tax year, rather than reporting the details of each property. This combined value is to be included in Category 6 of Form T1135, under the heading “Other property outside of Canada.”
This is an excerpt from the Revenue Canada Form:
For the 2016 tax year, the following Form T1135 reporting method is permitted:
1. Canadian registered securities dealer reporting method
A taxpayer who held specified foreign property in an account in the taxpayer’s name (or jointly with another taxpayer) with a Canadian registered securities dealer (as defined in subsection 248(1) of the Act) is permitted to report the aggregate amount of all such property held in that particular account in Category 6 "Other property outside of Canada". A taxpayer who chooses to use this reporting method must use it for all accounts with Canadian registered securities dealers.
2. Unit trust reporting method
A unit trust (as defined in subsection 108(2) of the Act) resident in Canada is permitted to report the aggregate amount of all specified foreign property it held in Category 6 "Other property outside of Canada”. If the 2016 transitional reporting method is being used, provide the following information:
"Description of property" – enter the name and account number of each Canadian registered securities dealer account (or the name of the unit trust) on a separate row; "Country code" – enter CAN;
“Maximum cost amount during the year enter” – enter "0"; "Cost amount at year end" – enter the market value of all specified foreign property held in that account (or by the unit trust) at the end of
the particular tax year; “Income (loss)" – provide the total income earned on all specified foreign property held in that account (or by the unit trust) at any time during the particular tax year;
"Gain (loss) on disposition" – provide the total gross gain or loss realized on the disposition of all specified foreign properties held in that account (or by the unit trust) at any time during the particular tax year.
So although this still looks complicated, it’s definitely better than the original release, and will definitely save us all some time. We’re not sure if this “transitional” rule will stay in effect beyond 2016, but for now its good news!
At Matheson Carson and Associates we're here to help you navigate through these things and more at tax time. Give our friendly staff a call at 514-695-4018 or drop in to our office, conveniently located at 24 Rue Canvin, Kirkland, Quebec.