patriot1 wrote:Well you certainly don't have to report anything held within an RRSP, RRIF or TFSA as they are Canadian domiciled trusts.
As for me, well I doubt I'll ever see the day when I have over 100K of taxable foreign holdings.
travesty wrote:If someone has taken a look at their holdings in a prior year and realized that they have have eclipsed the $100k limit at some point in the prior year - and the time now is such that they would certainly pay the $2,500 fee if they submitted the form late, would it advisable to simply ignore this, file the form as required in upcoming years and hope nothing happens?
DenisD wrote:DenisD wrote:BTW, the worst-case outcome is going to jail!
Could be I'm wrong about that. IANAL.
brianmunich wrote:Not sure if this should be in a separate thread, however i am experiencing a similar problem.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'.
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...
ITA 162 wrote:(7) Every person (other than a registered charity) or partnership who fails
(a) to file an information return as and when required by this Act or the regulations, or
(b) to comply with a duty or obligation imposed by this Act or the regulations is liable in respect of each such failure, except where another provision of this Act (other than subsection 162(10) or 162(10.1) or 163(2.22)) sets out a penalty for the failure, to a penalty equal to the greater of $100 and the product obtained when $25 is multiplied by the number of days, not exceeding 100, during which the failure continues."
Bylo Selhi wrote:Anyone have experience in dealing with this sort of thing? Is it worth filing an objection even as interest charges pile up? I'm concerned that if I pay up and simultaneously file an objection they won't be too sympathetic to that objection.
ghariton wrote:It certainly won't affect the decision of the Tax Court judge -- IMHO you're unlikely to get a serious hearing short of that stage. The good news is that you don't need a lawyer to go to Tax Court. Just tell your story. The bad news is that your chances of winning are small.
So, if you don't owe any tax, why rush to meet Friday's deadline?
Ask Jean-Claude Leclerc, who found himself in Tax Court after being assessed two late-filing penalties of $2,500 each, plus nearly $1,200 in arrears interest for failing to file Form T1135, the "Foreign Income Verification Statement" in both 2003 and 2006.
Form T1135 must be filed annually if the total cost of all your foreign investments, including foreign stocks (but not Canadian mutual funds with foreign holdings) held in non-registered Canadian brokerage accounts, was over $100,000.
The penalties for failing to file this form are severe: $25 per day, to a maximum of $2,500. If you knowingly or under circumstances amounting to "gross negligence," fail to file the form, the penalty jumps to $500 for each month the form is not filed, to a maximum of 24 months.
Historically, the CRA used to waive these harsh penalties for first-time, non-filing offences, but in recent years has been taking a harder line.
Mr. Leclerc filed his income-tax returns late in the two years in question, but there was no balance of tax payable and therefore no penalty was assessed for late filing those returns. He argued that his failure to file Form T1135 on time was due to his return to school and the illness of his mother.
Mr. Leclerc testified that he never failed to declare any foreign income and that the penalty was unreasonable since for 2003, it amounted to 148.4% of his total tax payable.
While the judge was sympathetic to Mr. Leclerc and agreed that he made an honest mistake caused by his ignorance of the consequences of not filing Form T1135 within the time limit, it was ruled that the penalties assessed by the CRA were properly imposed.
Bylo Selhi wrote:Added: Before adrian2 points it out, yes the enabling legislation was originally passed by a Liberal government. However it seems that it was under the "law-and-order" Conservative government that CRA was pressured into tightening the screws even on first time "offenders."
adrian2 wrote:It's not my habit to point the finger at the LiberalsBylo Selhi wrote:Added: Before adrian2 points it out, yes the enabling legislation was originally passed by a Liberal government. However it seems that it was under the "law-and-order" Conservative government that CRA was pressured into tightening the screws even on first time "offenders."
Bylo Selhi wrote:Do you believe that CRA's actions as described in Golombek's piece are "fair"? Do you believe that imposing draconian fines on people who make administrative errors (as opposed to those who evade tax) is a productive use of CRA's resources? Do you believe that the current minister of Revenue (of whatever political stripe) should be held accountable for this abuse of power by the department he leads?
Indeed. However, they have discretion in how that law is applied. For some reason they've decided in recent years to tighten the screws, widen the net, or whatever. While correlation (with a new government) doesn't imply causation, it sure seems suspicious.adrian2 wrote:No -- they are applying the letter of the law.
I'm not asking for his head. I'm, um, pointing out some unintended consequences when a bunch of law-and-order ideologues blindly decide to get tough with "tax evaders." I wonder how much revenue from actual tax evaders that this initiative has generated. I bet it's less than what they're raking in from people like Leclerc and me.don't ask for the head of its enforcer because they are doing their job.
Bylo Selhi wrote:... it sure seems suspicious.
There's actually a bit of logic to that. The foreign assets declaration form came about when the Chretien/Martin government began a crackdown on undeclared foreign assets. You may recall that without intervention from several groups, including this one, they were going to start taxing US ETFs on an annual mark-to-market basis. That's when your conspiracytheory might have held some water.Maybe they want to encourage us to sell our US ETFs and replace them with more expensive Canadian substitutes, so they can tax the MER-based profits of the product providers?
Bylo Selhi wrote:You may recall that without intervention from several groups, including this one, they were going to start taxing US ETFs on an annual mark-to-market basis. That's when your conspiracytheory might have held some water.
CGs on appreciation of NAV are taxed the same way, i.e. deferred until the ETF is sold. OTOH distributions from US-based ETFs are taxed as ordinary income regardless of how they're characterised, i.e. capital gains and dividends are taxed at much higher rates. I suspect there's much more extra tax revenue from that than is foregone on taxation of 10bp MERs. So based on that treatment, CRA should prefer that we all own US rather than Canadian ETFs.IdOp wrote:the extra capital gains are taxed on a delayed basis at half the rate. If that stuff is in Canada, they get to tax it now at a corporate tax rate or some at the income tax rate of a well-paid manager.
These are exactly the points I'm trying to make. ISTM the legislation was poorly worded. First, it didn't exempt foreign assets held in a Canadian account even though they're already "known" to CRA. Second, because the T1135 is bundled with standard annual tax returns, it's easy to miss the filing requirement and thus attract the draconian penalties that ensue, when someone files their tax return late because they don't owe any tax. In the past CRA used its discretion to waive T1135 penalties in such cases. For some reason they've recently decided to tighten the screws. Did they do that on their own initiative or were they directed to do so by the current government? (And regardless, why?)I guess my real beef with it is that those holding US ETFs seem to be innocent by-standers caught in the trap. I fully understand that world-wide income is to be reported to CRA and that there are people who evade this and they want to crack down. No problem with that. But if we hold these ETFs at a Canadian broker, then CRA already does get informed about every bit of income from them and not only that, every time we sell them so they know there's a capital gain to be reported. They should make an exemption for foreign property for which all income is already/otherwise reported to them for the whole year. Then we wouldn't have to file these blasted ill-defined forms every year, and worry about getting fined if we're late.
AFAIK CRA has the power to do that administratively, i.e. using an Interpretation Bulletin. The same for waive late-filing penalties when the taxpayer has previously filed T1135s and/or for first-time "offenders" where there's no evidence of willful tax evasion. No change of legislation is required, especially if their current actions are perceived to be unfair.Of course if they made a sensible exemption for foreign ETFs at a Canadian brokerage, less people would have to make this request.
Bylo Selhi wrote:CGs on appreciation of NAV are taxed the same way, i.e. deferred until the ETF is sold. OTOH distributions from US-based ETFs are taxed as ordinary income regardless of how they're characterised, i.e. capital gains and dividends are taxed at much higher rates. I suspect there's much more extra tax revenue from that than is foregone on taxation of 10bp MERs. So based on that treatment, CRA should prefer that we all own US rather than Canadian ETFs.
Norbert Schlenker wrote:There must be some obscure reason that it's there, though, so I would be interested to hear some theories from FWF member.
Interesting. But then since CRA knows what you buy and sell, as well as what income you derive from it they should be able to deduce what you have at a coarse enough level to satisfy the same needs as the T1135 provides. ISTM this would be more convenient for all parties since no additional paperwork would need to be filed.The only thing that comes to my mind is that transactions have no privacy protection from government's prying eyes while assets still do.
Which is partly why I don't think the MER difference is what motivates CRA's new get-tough policy on T1135s.IdOp wrote:So it's not at all clear which way the CRA gets more money, is it?
The requirement to disclose foreign investments held in Canadian brokerage accounts seems to make little sense and can lead to severe penalties even if the foreign income from the "non-disclosed" investments was fully reported...
These seven cases, along with three other similar decisions, now bring the total to 10 reported federal court cases in the past year or so dealing with failed attempts by taxpayers to get relief from penalties and interest for late-filed T1135 forms.
Not withstanding any reversal upon appeal, which has already been filed, it's high time that the legislation was reformed to either formally introduce a "one-chance policy" or, even better, to carve out foreign securities held in Canadian brokerage accounts from the definition of "specified foreign property" required to be reported on Form T1135.
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