T1135 Form

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Arby
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Re: 2014 - T1135 Form

Post by Arby » 27 Apr 2015 14:19

I printed a hard copy of the T1135 to be mailed to CRA. I'll need a larger envelope to accommodate the mailing address provided by CRA. The address requires 4 lines and 14 words just to identify the department. :roll:
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Re: 2014 - T1135 Form

Post by milo » 27 Apr 2015 20:31

This should be simple.
Lets say I bought a foreign 1-year-GIC in a foreign bank.
Bought in OCT-2013 (term ends OCT-2014). Interest was paid twice, once Mar-2014 and another in Oct-2014.
I did not renew.

I understand, I should enter in Category 3.
Whats "Maximum cost amount during the year"?
At first, I was thinking of using the amount (times exchange-rate in OCT-2013) I bought the GIC in OCT-2013
then I had second thoughts since I bought in 2013.

e.g.
OCT-2013 bought GIC 100000
Mar-2014 interest 1000
Oct-2014 interest 1000

Category 3
"Maximum cost amount during the year" =100000 (x exchange-rate OCT-2013)
"cost amount at year end" =0 (since I did not renew)
"Income" =1000 (x exchange-rate MAR-2014) + 1000 (x exchange-rate OCT-2014)
"Gain on disposition" =1000 (x exchange-rate MAR-2014) + 1000 (x exchange-rate OCT-2014)

Do you agree?

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Re: 2014 - T1135 Form

Post by IdOp » 27 Apr 2015 23:28

I'm not a qualified tax expert, but here's my take on it FWIW.
milo wrote: Category 3
"Maximum cost amount during the year" =100000 (x exchange-rate OCT-2013)
Agree. I've always taken CRA's references to cost in the context of T1135 to mean adjusted cost base. I'm not sure if their documentation uses that term. But that's what you are saying here. The ACB uses the exchange rate when you buy the thing, as you've done.
"cost amount at year end" =0 (since I did not renew)
Makes sense, you no longer own it.
"Income" =1000 (x exchange-rate MAR-2014) + 1000 (x exchange-rate OCT-2014)
Looks OK. CRA's documentation says that for income paid throughout the year, you have the option of also using the average annual exchange rate. Probably you could do that here too, if two payments qualifies as "throughout the year".
"Gain on disposition" =1000 (x exchange-rate MAR-2014) + 1000 (x exchange-rate OCT-2014)
This looks like a typo, as it's the same as what you wrote for "Income". I am thinking the gain would be

100K x (exchange rate OCT 2014) - 100K x (exchange rate OCT 2013).

That is, final value minus cost. Hope I haven't overlooked something.

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Re: 2014 - T1135 Form

Post by milo » 28 Apr 2015 09:14

IdOp wrote:I'm not a qualified tax expert, but here's my take on it FWIW.
"Gain on disposition" =1000 (x exchange-rate MAR-2014) + 1000 (x exchange-rate OCT-2014)
This looks like a typo, as it's the same as what you wrote for "Income". I am thinking the gain would be

100K x (exchange rate OCT 2014) - 100K x (exchange rate OCT 2013).

That is, final value minus cost. Hope I haven't overlooked something.
I did not know what to put for "Gain on disposition", so I used the same number as the interest.
Looks like your calc makes sense, but I don't know. Anybody else agree?
thanks for your help.

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Re: 2014 - T1135 Form

Post by adrian2 » 28 Apr 2015 09:37

milo wrote:I did not know what to put for "Gain on disposition", so I used the same number as the interest.
Looks like your calc makes sense, but I don't know. Anybody else agree?
I agree with IdOp.
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Re: 2014 - T1135 Form

Post by blackball » 28 Apr 2015 23:03

Pulling my hair out over this stupid form. Some help would be much appreciated.

If I am electing to calculate the total capital gains on schedule 3 for my US securities using the average annual exchange rate, should I be using this amount on form T1135 or must I use the daily (or average monthly) rates for the date of acquisition and disposition to calculate the capital gains? Not sure if the numbers on schedule 3 and form T1135 have to match to each other.

Also a related question: If I purchase a US security in 2013 and sell in 2014, am I allowed to convert the difference in US$ using just the 2014 average annual exchange rate? Or must I convert the purchase price using the 2013 rate and the sale price using the 2014 rate and subtract the difference? Any reference I seem to have found to the use of average annual exchange rates seems to gloss over this detail.

Thanks for the last minute help :)

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Re: 2014 - T1135 Form

Post by AltaRed » 28 Apr 2015 23:27

I treat the info for T1135 the same as on my T1 when it comes to cap gains/losses and income. On my T1, I am always converting my US domiciled buys and sells based on the exhange rate on the day of the transactions, e.g. day x in 2013 for the buy and day y in 2014 for the sell. That way, my US domiciled cap gains (losses) on dispositions will exactly match on Sch 3 and the T1135. US domiciled Income is different since it comes in at regular intervals each month. That I convert using the annual average rate and it is the same on Sch 4 as it is on the T1135. I don't see any justification for those numbers in particular to be any different on the T1 than they are on the T1135.
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Re: 2014 - T1135 Form

Post by milo » 29 Apr 2015 09:14

adrian2 wrote:
milo wrote:I did not know what to put for "Gain on disposition", so I used the same number as the interest.
Looks like your calc makes sense, but I don't know. Anybody else agree?
I agree with IdOp.
I am still thinking of your answer
"Gain on disposition" = 100K x (exchange rate OCT 2014) - 100K x (exchange rate OCT 2013).
But the GIC is still in the foreign bank, I did not convert to canadian. Are you assuming the GIC got converted to canadian dollars?
Since the canadian dollar went down lots, my "Gain on disposition" will be a large amount.
And where do I put in the other tax forms?- Capital gains? But I did not realize it.

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Re: 2014 - T1135 Form

Post by adrian2 » 29 Apr 2015 09:52

milo wrote:"Gain on disposition" = 100K x (exchange rate OCT 2014) - 100K x (exchange rate OCT 2013).
But the GIC is still in the foreign bank, I did not convert to canadian. Are you assuming the GIC got converted to canadian dollars?
Since the canadian dollar went down lots, my "Gain on disposition" will be a large amount.
And where do I put in the other tax forms?- Capital gains? But I did not realize it.
If you sell a security denominated in a foreign currency, the way you should calculate your capital gain or loss takes into account the forex factor; it does not matter if you kept the sale proceeds in that foreign currency or converted immediately to CAD.
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Re: 2014 - T1135 Form

Post by IdOp » 29 Apr 2015 10:23

milo wrote:Since the canadian dollar went down lots, my "Gain on disposition" will be a large amount. And where do I put in the other tax forms?- Capital gains? But I did not realize it.
Basically the GIC is like a foreign bond, when it matures it's like you disposed of (sold) it and there's a capital gain. You're right, due to the currency movements you got a large gain, and this is unpredictable beforehand. It comes with the territory of foreign investments, and hopefully over time such gains and losses will average out. As to where to report the capital gain on the foreign GIC, I think it would go on Schedule 3, Section 5, titled "Bonds, dependtures, promissory notes, and other similar properties".

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Re: 2014 - T1135 Form

Post by IdOp » 29 Apr 2015 10:34

blackball wrote:If I am electing to calculate the total capital gains on schedule 3 for my US securities using the average annual exchange rate, should I be using this amount on form T1135 or must I use the daily (or average monthly) rates for the date of acquisition and disposition to calculate the capital gains? Not sure if the numbers on schedule 3 and form T1135 have to match to each other.
Capital gains on securities should not be calculated using an annual average exchange rate. You should use the exchange rates at the times of any buy or sell that affects the calculation. The gains reported on T1135 and Schedule 3 would both be done this same way.
Also a related question: If I purchase a US security in 2013 and sell in 2014, am I allowed to convert the difference in US$ using just the 2014 average annual exchange rate? Or must I convert the purchase price using the 2013 rate and the sale price using the 2014 rate and subtract the difference? Any reference I seem to have found to the use of average annual exchange rates seems to gloss over this detail.
I assume you're asking how to calculate the capital gain. You would use the exchange rate at the time of the buy in 2013 to calculate your cost in C$, and use the exchange rate at the time of the sell in 2014 to calculate your "proceeds of disposition" (what you got for selling it), also in C$. The difference (C$ proceeds) - (C$ cost) is the capital gain. Average exchange rate is not used.

The confusion with using an average exchange rate is understandable. Two places it can be used is for foreign income received "throughout the year". You may report the income this way, or you can use the exchange rates at the times it was received. On T1135, the instructions for "Foreign currency conversion" say the maximum market value held during the year should (i.e., must) use the average annual exchange rate.

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Re: 2014 - T1135 Form

Post by adrian2 » 29 Apr 2015 10:39

IdOp wrote:Capital gains on securities should not be calculated using an annual average exchange rate. You should use the exchange rates at the times of any buy or sell that affects the calculation.
The horse's mouth wrote:Report your gains or losses in Canadian dollars. Use the exchange rate that was in effect on the day of the transaction or, if there were transactions at various times throughout the year, you can use the average annual exchange rate.
FWIW, I use the average annual exchange rate.
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Re: 2014 - T1135 Form

Post by pmj » 29 Apr 2015 10:43

So if the two transactions were in different years, and were reported using the appropriate average rates for each year, there would likely be a reportable currency gain or loss that might or might not reflect the actual gain or loss.
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Re: 2014 - T1135 Form

Post by IdOp » 29 Apr 2015 11:04

adrian2 wrote:
The horse's mouth wrote:Report your gains or losses in Canadian dollars. Use the exchange rate that was in effect on the day of the transaction or, if there were transactions at various times throughout the year, you can use the average annual exchange rate.
FWIW, I use the average annual exchange rate.
Thank you!, I didn't realize that. I assume they mean converting the proceeds of disposition using the average rate, while the ACB should be computed using time of transaction for buys?

FWIW, I use the time of transaction rate (obviously, since I didn't know the average could be used :oops: ). The average can be a great convenience but it just strikes me as weird.

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Re: 2014 - T1135 Form

Post by IdOp » 29 Apr 2015 12:02

Just a bit of frustration with CRA's documentation on this :shock: :

In the guide T4037 - Capital Gains 2014, on page 10 (bottom right) it says to use the exchange rates in effect at the time of transaction. Nowhere in the Guide can I find mention of the average rate, even though clearly you can use it sometimes. :?

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Re: 2014 - T1135 Form

Post by adrian2 » 29 Apr 2015 12:07

IdOp wrote:Thank you!, I didn't realize that. I assume they mean converting the proceeds of disposition using the average rate, while the ACB should be computed using time of transaction for buys?
I use the annual average for both buys and sells.

This has the added advantage that a buy for US$ denominated securities, paid for with US$ cash is easier to account for. There is no associated disposition of US$ cash at a daily rate which results in a CG calculation for the "US Buck" security; instead all US$ cash, MMF and HISA balances as of Jan 1 of each year get revalued at the new annual forex (known only a year later, and resulting in a CG or loss) and the value of the US buck security stays constant throughout the year. The (safe in my case) assumption is that all the US$ balance on Jan 1 will be spent / received back during the year on various buys and sells.
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Re: 2014 - T1135 Form

Post by adrian2 » 29 Apr 2015 12:09

pmj wrote:So if the two transactions were in different years, and were reported using the appropriate average rates for each year, there would likely be a reportable currency gain or loss that might or might not reflect the actual gain or loss.
Correct!
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Re: 2014 - T1135 Form

Post by adrian2 » 29 Apr 2015 12:11

IdOp wrote:Just a bit of frustration with CRA's documentation on this :shock: :

In the guide T4037 - Capital Gains 2014, on page 10 (bottom right) it says to use the exchange rates in effect at the time of transaction. Nowhere in the Guide can I find mention of the average rate, even though clearly you can use it sometimes. :?
Since much of our tax return is self reported, my guess is that they don't care so much which method you use, as long as you're consistent and therefore you don't try to game the system.
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Re: 2014 - T1135 Form

Post by Bylo Selhi » 29 Apr 2015 12:34

adrian2 wrote:my guess is that they don't care so much which method you use, as long as you're consistent and therefore you don't try to game the system.
In addition I suspect it also depends on the size of any discrepancy. For example a 1% difference between the annual FX rate and the transaction date rate on $10,000 (i.e. $10) isn't going to raise much ire from CRA. But on a $1,000,000 transaction the difference would be $10,000. An auditor who passes on $10 with maybe a "tsk, tsk, don't do this again" is likely to salivate all over a $10k revenue recovery opportunity.

IOW the usual: Use common sense. Don't be greedy.
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Re: 2014 - T1135 Form

Post by AltaRed » 29 Apr 2015 12:38

Per IdoP, I use the Cap Gains guide for transaction date forex conversions. It is perverse, in my opinion, to use annual average rate UNLESS one is a frequent trader (say 20-30 transactions a year), when the methodogy pertaining to frequent income (annual average rate) can make more sense. For someone who might make 2-3 buy/sells a year, I believe CRA would have reason to challenge average annual rate. It is a matter of practicality.

But where I agree with Adrian2 is it matters to be consistent year to year....forever.
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Re: 2014 - T1135 Form

Post by blackball » 30 Apr 2015 22:54

I finally got through on my call to CRA and they confirmed that we can use the two average annual rates if the purchase and sale are in different years to calculate the capital gains for schedule 3. They also confirmed the same can be used for the calculation of capital gains on T1135. So the capital gains from foreign securities should be the same on both schedule 3 and form T1135. The person I talked to also mentioned that even though the deadline was extended to file 2014 tax returns to May 5th the same does not go for the form T1135. Apparently it is still due today -_-

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Re: 2014 - T1135 Form

Post by Bylo Selhi » 01 May 2015 08:16

blackball wrote:The person I talked to also mentioned that even though the deadline was extended to file 2014 tax returns to May 5th the same does not go for the form T1135. Apparently it is still due today -_-
Another revenue generating opportunity for CRA. Few people realize that the T1135 is independent of the T1/T2 tax form. You have to file the T1135 by its due date of 30Apr15, even if you have no T1/T2 to file and/or no income tax to pay, or risk attracting the attention of CRA's ever vigilant computers.

So if you delay filing the T1135 by 5 days to 05May15 as per the current SNAFU you risk being fined $125. See e.g. A LATE T1135 CAN BE COSTLY
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Re: 2014 - T1135 Form

Post by DavidR » 01 May 2015 10:18

From the 4th page of T1135
Due dates for filing this form
Form T1135 must be filed on or before the due date of your income tax return
Personal income tax returns for 2014 are due May 5. I expect the person blackball spoke to was wrong (even if Minister Findlay hasn't said so yet).

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Re: 2014 - T1135 Form

Post by Bylo Selhi » 01 May 2015 11:10

DavidR wrote:I expect the person blackball spoke to was wrong (even if Minister Findlay hasn't said so yet).
The odds of that are much higher than they should be (even if Minister Findlay hasn't admitted so yet), e.g. Revenue Canada's call centres giving bad tax advice: report
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Re: 2014 - T1135 Form

Post by travesty » 02 May 2015 19:51

Does anyone know if you can file your T1135 electronically using a software suite like StudioTax if you already filed your return with a different suite (e.g., TurboTax) which does not support electronic filing of the T1135?

I find it absurd that a couple of the free/budget packages have implemented free filing for this form, while the "big two" of UFile and TurboTax have not. I've been a TurboTax user for a while, but I will check my options when I file next year.

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