T1135 - Just the beginning?

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chrave19566
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T1135 - Just the beginning?

Post by chrave19566 » 06 Sep 2009 05:59

Assume you are a good taxpayer and complete the T1135 - foreign asset statement and tick YES I have over $100,000 in a non-Canadian bank

... then what?

I imagine CCRA will request details of bank name & account numbers & all your statements correct? Has anyone had any follow-up from CCRA after saying YES?

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Post by bbsj » 06 Sep 2009 06:50

I was asked once for the relevant documents for reassessment. After I sent them CRA returned the documents back to me and suggested I keep them in case they decide to audit at a future date.

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Re: T1135 - Just the beginning?

Post by DavidR » 06 Sep 2009 12:48

chrave19566 wrote:Assume you are a good taxpayer and complete the T1135 - foreign asset statement and tick YES I have over $100,000 in a non-Canadian bank

... then what?

I imagine CCRA will request details of bank name & account numbers & all your statements correct? Has anyone had any follow-up from CCRA after saying YES?
I have clients who have been filing T1135s for years. To the best of my knowledge, none have been asked yet for further info yet.

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Post by Bylo Selhi » 06 Sep 2009 13:23

And if CRA does ask, what's the problem?

I've been asked to substantiate various items on various tax returns over the years. In one case I'd made a T-slip transcription error. They caught it, corrected it and charged me a few bucks interest. Fair enough. In the other cases I faxed or mailed them the documents they requested and never heard from them again about the matter.
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Post by snowback96 » 06 Sep 2009 13:26

If you want a glimpse into the future, just take a look at this little bitch that the IRS requires for all foreign accounts (including RRSPs) of its citizens and residents: http://www.irs.gov/pub/irs-pdf/f90221.pdf

If you have >$10k in total combined foreign assets, you need to provide name of bank/broker for every account, their address, your account number, and the maximum $ value during the year. The form continues to get more invasive and complex every few years.

Penalty for for non compliance is up to $500k fine AND 5 years imprisonment. :shock:

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Post by kcowan » 06 Sep 2009 15:49

I clicked yes for >$100k last year (condo in PV MX) and have not heard any more about it.

By comparison, the IRS has an onerous reporting requirement for any foreign trusts. Mexican real estate within 50km of the ocean qualifies. i.e. yes I hold a foreign trust. No it generates no income. (Unless you rent it out.)

In my case, I went through this logic:
Do I own foreign property? No the bank trust does.
Am I the beneficiary of that trust? Yes.
OK then check off Yes.
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Post by pitz » 06 Sep 2009 17:54

The 'problem' with the T1135, at least for a Canadian, is that the CRA routinely fines people, seperately, if they are late in filing their entire income tax return.

So while the late filing penalty on income tax is 5% or so of the amount owing (+ interest), there is a seperate fine for not filing the T1135 'on-time'.

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Post by IdOp » 06 Sep 2009 21:08

I also had to fill out this form for the first time this year. Although I'm vague on all of my complaints about it by now, it seemed to me some of the instructions were not very clear, and at times it seemed to have bizarre unintended consequences.

Here is one example, from page 3 under "Type of Property":
CRA wrote:For each type of property, check the box which corresponds to the cost amount of the property at the end of the year. Report the property if you owned it at any time in the year, i.e., report the property even if you did not own it at the end of the year, but did at some time in the year. If you do not own the property at the end of the year, use its cost amount at the time of disposition.
My interpretation of this: Suppose you own one US stock with a cost amount of $10,000 and hold it all year (and that is all the foreign property). Then you don't have to report.

But suppose you're a trader and cycle that money through 12 stocks during the year, one after another. Then you have 12 foreign properties, each with a cost amount of $10,000 at either the time of disposition or end of year. Total is then $120,000. Bingo, you have to report. Even though you never owned more than $10,000 worth at any time, and the income earned from these two scenarios would be expected to be about the same.

Did they really intend to distinguish these cases, or is this a committee-produced brain fart? Or is my interpretation wrong?

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Post by snowback96 » 06 Sep 2009 22:40

IdOp:

I'd suggest you may be over thinking this one. In this case, my non-pro interpretation is that you have only $10k and therefore under the threshold.

I think they're just trying to say that people that had $100k on Dec 30 but only $0 on Dec 31 still need to report. Otherwise why not just sell foreign holdings at the end of every year and buy back every Jan 1 to stay under the radar?

In your hypothetical situation, if they interpret your foreign holdings as $120k vs. $10k, tell them "see you in court".

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T1135 - Just the beginning?

Post by chrave19566 » 06 Sep 2009 22:42

Thanks for the replies - here's another question about this form...in the FAQ on the form, they specifically identify a situation; if you own more than $100,000 (cost) in a Canadian registered fund which invests in foreign stocks - you do not need to file T1135

What if this Canadian fund is held in an account with a non-Canadian broker?

Is their FAQ pooly worded - in that they meant to say "...and is held in your Canadian broker account"

..And what if you read the FAQ literally, assumed they actually meant what they said - they discover years later you held these funds in a non-canadian broker - CCRA says, you should have known what we meant or the FAQ are just for your assument - you must refer to the Law (ie Tax Act)...you are now faced with fines which could easily wipe out your total holdings..

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Post by IdOp » 06 Sep 2009 23:11

snowback96 wrote:I'd suggest you may be over thinking this one.
Always a very real possibility. :oops:
In this case, my non-pro interpretation is that you have only $10k and therefore under the threshold.
Mine is also non-pro, and I agree in the context of my example. Early in the form it says you have to file if "at any time in the year the total cost amount of all specified foreign property you owned or held a beneficial interest in was more than $100,000." Clearly in my example above this was not the case, so no filing there.

However your comment and a PM from the OP have reminded me that my example above is deficient. So let's modify it and say the investor also had > $100k in some other foreign stock that he held through the year. Now he has to file, but the question is, does he tick off the box for $100k, or $300k, or ... ? Now with some frequent trading of large enough amounts of other stocks, he could put himself into any category there ... if you read it the right way.
I think they're just trying to say that people that had $100k on Dec 30 but only $0 on Dec 31 still need to report. Otherwise why not just sell foreign holdings at the end of every year and buy back every Jan 1 to stay under the radar?
I agree that is probably their intent, but what they've written seems, to me, to leave it wide open to ambiguity.

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Re: T1135 - Just the beginning?

Post by IdOp » 06 Sep 2009 23:28

chrave19566 wrote:...in the FAQ on the form, they specifically identify a situation; if you own more than $100,000 (cost) in a Canadian registered fund which invests in foreign stocks - you do not need to file T1135

What if this Canadian fund is held in an account with a non-Canadian broker?

Is their FAQ pooly worded - in that they meant to say "...and is held in your Canadian broker account"
My non-expert reading would be that the fund being registered in Canada means it's not foreign property, no matter what the fund invests in. Since it's not foreign, it wouldn't seem to matter where the fund units are held: at a Cdn or US broker. (Actually, I doubt you can have a Cdn mutual fund at at US broker, but an ETF like XSP would probably work instead as a similar example.)

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Post by snowback96 » 07 Sep 2009 10:28

IdOp wrote:However your comment and a PM from the OP have reminded me that my example above is deficient. So let's modify it and say the investor also had > $100k in some other foreign stock that he held through the year. Now he has to file, but the question is, does he tick off the box for $100k, or $300k, or ... ? Now with some frequent trading of large enough amounts of other stocks, he could put himself into any category there ... if you read it the right way.
I think the same methodology applies. Take all 365 days of the year and add up your foreign holdings for every day. Take the highest single day of the year and report that amount on your 1135. If you were only above $300k for one day, that's still your high water mark for reporting purposes.

You could easily get bumped up to a higher threshold if there is any discrepancy on the day you buy/sell securities (or perhaps even the settlement dates). Say you buy $300k of VEA on one day and sell $300k of VPL & VGK the next day. Your amount of foreign holdings for 1135 purposes is $600k based on that 1 day of overlap.

Again, just my layman's interpretation.

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Post by IdOp » 07 Sep 2009 10:56

snowback96 wrote:I think the same methodology applies. Take all 365 days of the year and add up your foreign holdings for every day. Take the highest single day of the year and report that amount on your 1135. If you were only above $300k for one day, that's still your high water mark for reporting purposes.
I think this would be a very sensible way to look at it. It is basically like the overall blanket > $100,000 applicability statement for the whole form, but extended to how much you have to report. This may even be what CRA really means and wants. The trouble is, though, it's not what they wrote. :?

For example, rather than say report the high-water mark of any time during the year, as you so clearly did, they say, report the "cost amount of the property at the end of the year." (my emphasis)

And the next sentence, about reporting property "if you owned it at any time of the year" could easily scare someone into thinking they were being evasive if they didn't add it into the total. Of course, if the day-trader does add it in and increases his total dramatically, yet reports little income on this faux capital base, this might appear suspicious to CRA and they might be more likely to question it.

The way the thing is written just seems like a mess to me. I guess one could always phone CRA, though, for total and instant clarification. :lol:

Again, I think your suggestion would be a clear and excellent way to look at it, but from what they wrote and without more experience, it seems really hard to tell what they want.

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Post by Gus » 07 Sep 2009 11:33

kcowan wrote:I clicked yes for >$100k last year (condo in PV MX) and have not heard any more about it.
I don't think you had to report your condo (although I see no harm in doing so).

According to the notes accompanying the form:
You do not have to report information about property held for personal use. This includes vacation property used by you primarily as a personal residence, as well as listed personal property such as works of art, jewellery, rare folios, rare manuscripts, rare books, stamps, and coins.
It baffles me why some foreign property is included and some is excluded, especially as certain objects, such as works of art, are sometimes held as speculative investments. You would think that they would want you to report everything.
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Post by kcowan » 07 Sep 2009 17:50

Gus wrote:
kcowan wrote:I clicked yes for >$100k last year (condo in PV MX) and have not heard any more about it.
I don't think you had to report your condo (although I see no harm in doing so).

According to the notes accompanying the form:
You do not have to report information about property held for personal use. This includes vacation property used by you primarily as a personal residence, as well as listed personal property such as works of art, jewellery, rare folios, rare manuscripts, rare books, stamps, and coins.
It baffles me why some foreign property is included and some is excluded, especially as certain objects, such as works of art, are sometimes held as speculative investments. You would think that they would want you to report everything.
In my case, the current intention is that it is strictly personal use. But that might change if we acquire additional properties. I suppose I could have waited until that became a fact.
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Post by snowback96 » 07 Sep 2009 21:54

IdOp:

I think you're right. Upon further reflection, my "high water mark" comment is misleading since we are talking "cost amount" as opposed to "market value". Simply use the cost basis on Dec 31 (if you still own it) or the cost basis on the day you sold it.

The more complicated situation is where you had 1000 shares of Company X early in the year but sold 900 before year end. In that case, use 100 shares to determine your cost amount. Clearly this is not a "high water mark". But you're correct, this is what the rules tell you to do. Very strange stuff.

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Post by brianmunich » 22 Sep 2009 13:58

pitz wrote:The 'problem' with the T1135, at least for a Canadian, is that the CRA routinely fines people, seperately, if they are late in filing their entire income tax return.

So while the late filing penalty on income tax is 5% or so of the amount owing (+ interest), there is a seperate fine for not filing the T1135 'on-time'.
Not sure if this should be in a separate thread, however i am experiencing a similar problem.

basically received NoA for 2007 with NIL balance, after late filing - all ok.
last week, received NoA stating late filing of T1135 (for 2007), and now a $2500 penalty PLUS interest. This is the first I have heard of this, so find it harsh to be fined the maximum penalty.

question is, do i have a case for this to be revoked?

any advice most welcome

many thanks

BM

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Post by AltaRed » 22 Sep 2009 14:40

brianmunich wrote:basically received NoA for 2007 with NIL balance, after late filing - all ok.
last week, received NoA stating late filing of T1135 (for 2007), and now a $2500 penalty PLUS interest. This is the first I have heard of this, so find it harsh to be fined the maximum penalty.

question is, do i have a case for this to be revoked?
Probably not. The Guide (or material with the tax software) for the T1 General is very clear about the filing of the T1135 on time* and the consequences of not doing so. No one can genuinely say they overlooked it.

You may try to reason with them to have the penalty reduced (or the interest eliminated) by reasons of hardship (ability to pay - if indeed true), or naivity, but I do not think you have any ground to stand on.

* My T1 General for 2008 was filed late (refund due) for a number of reasons, but the T1135 was filed by itself well before the deadline. Do not mess with governments (Canadian or US for that matter) when it comes to reporting out-of-country assets.

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Post by brianmunich » 22 Sep 2009 15:20

thanks for that - however i do not that on the CRA website it states the following:

Q17. How is the cost amount determined for income tax purposes when a recent immigrant to Canada owns foreign property at the time of immigration?
A17. For new residents, the cost amount of foreign property owned at the time of entry into Canada is its fair market value at that time.
Reporting is not required by an individual (other than a trust) for the year in which he or she immigrated to Canada.

given that this was the year of immigration to Canada, i was volunteering the information on the T1135.

still strikes me as odd that if you are late filing, you get a small fine and can even file years late, however if you are late filing a T1135, you get the book thrown at you.

thanks again.

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Post by AltaRed » 22 Sep 2009 16:33

If 2007 was the year of immigration for you, then that is the case you make to CRA, with a copy of your immigration document. You should be free and clear.

Presumably, you filed your 2008 form on a timely basis?

Just like the US Treasury is very unhappy with US residents/citizens who do not file their forms on a timely basis, Canada doesn't take lightly to late filed T1135s. Call it what you want (vis-a-vis late T1 filings) but every accounting firm will tell you time and time again not to mess around with those declaration forms. When I was considered a US resident, I had to fill out a form each year for each account I had outside the USA, with account number, etc, etc, etc.

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Post by brianmunich » 03 Oct 2009 22:56

well, letter sent to CRA explaining situation - apparantley have to wait 4-6 weeks for a response.

thanks for the advice,

cheers

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Post by travesty » 04 Oct 2009 00:33

Why are US stocks held with a Canadian broker interesting for the CRA in terms of the additional disclosure this form implies? They seem to be just as trackable/visible to the CRA as Canadian equity held in that account.

I mean your broker still needs to report dispositions, dividends And other income for such holdings, right?

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Post by Germack » 04 Oct 2009 12:32

So if I have a MF with a value over 100K which invest in US equities (e.g. TD e-series funds) I do not have to fill this form? Correct?

If instead I have a US ETF with a value over 100K I have to fill this form? Does it matter if I owe VTI or XSP?

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Post by Clock Watcher » 04 Oct 2009 13:01

So if I have over $100K in ETFs that trade on American stock exchanges with IB.ca, I have to report this separately to the CCRA? If that is the case, then it is ridiculous.

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