Questions on T1135

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Wing
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Questions on T1135

Post by Wing »

In 2017... I am a returning citizen (I declared non resident when I left years ago and 2017 is my first year filing Canada taxes after years not), my wife is a new immigrant. We both hold foreign properties more than 100k each.

I know that my wife is exempted from reporting T1135 as it's her first year of resident. However, I'm not.

So, the headache is only for me to figure out how to deal with T1135. I opened an investment account jointly with my wife in 2017. I'm the sole contributor for this account. I know I'll need to report all capital gains on my tax return. During the year, this account holds US traded stocks worth the most 270k.

In the above case, can I used the simplified method in reporting as on paper, my wife and I are co-owner of the assets, thus "ownership" is 135k each (ie. less than 250k)? I have no other foreign property other than in this investment account.

If yes to the above, should I still state the 100% capital gain on T1135 as I'm the sole contributor of this account's assets?
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Re: Questions on T1135

Post by gobsmack »

Because this is the first time you have to deal with this, my suggestion is that you pay an accountant to do it for you. The penalties for failing to file a T1135 properly are outrageously high. If you make a mistake, it will be a huge hassle to fix it. Therefore, I think it would be worth paying an accountant to do it for you the first time around. You will learn how to do it correctly by following what the accountant did.
Wing wrote: 06 Jan 2018 00:42 During the year, this account holds US traded stocks worth the most 270k.
T1135 is not based on how much the property is worth. It is based on the cost of the property. The decision as to whether you will be using the simplified method or not should be based on your ACB.
Wing wrote: 06 Jan 2018 00:42 I have no other foreign property other than in this investment account.
Keep in mind that, once you trigger the T1135, you have to report everything that you may own overseas. For instance, if you happen to have a bank account overseas with only a few dollars in it, you will be required to add it to the report as well. You will also be required to add to the report foreign stocks/ETFs that you may hold in a taxable account in Canada.
Wing wrote: 06 Jan 2018 00:42 If yes to the above, should I still state the 100% capital gain on T1135 as I'm the sole contributor of this account's assets?
I am not an accountant but, if you are the sole contributor, I believe you should be reporting everything under your own T1135. The account would be treated as though it is only under your name. I am not sure though.
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Re: Questions on T1135

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Indeed. Since Wing is the sole contributor, all of the assets beneficially belong to Wing. It matters not whether the account is joint or not. Remember the purpose of the T1135 is to help ensure each taxpayer is declaring his/her foreign assets and paying taxes on the income from those assets.

If what Wing paid for the assets exceeds $250k CAD equivalent, i.e. cost, not market value, the detailed method will be necessary. It is not difficult to do that if all such assets are in a Canadian brokerage account. They don't have to be itemized. Just use Category 7 (as I do). I also report on Category 1 for my Wells Fargo bank account.
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Re: Questions on T1135

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AltaRed wrote: 06 Jan 2018 10:51 Remember the purpose of the T1135 is to help ensure each taxpayer is declaring his/her foreign assets and paying taxes on the income from those assets.
This is the stated goal but I find it strange that the penalties apply even when no tax is due and, therefore, no harm was done. The penalties are ridiculously high and it does not matter how much income was not declared and if any tax is owed. I don't think it is very likely a wealthy individual who is serious about evading taxes would ever fall for the T1135 trap. So in that sense, it seems like a strange way of trying to achieve this goal.
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Re: Questions on T1135

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But if said wealthy individuals get caught with tax evasion, all the easier to throw the book at them. it has deterrent value but how much likely depends on the arrogance of the wealthy individual.

It is like when I was working regarding expense accounts. We did not have to submit our receipts but it was up to us to retain for potential audit. The penalty for proactive cheating (as compared to innocent mistakes) was termination. There was just enough examples from time to time of cheaters being fired (and subtly publicized) that likely kept almost everyone honest.
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Re: Questions on T1135

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AltaRed wrote: 06 Jan 2018 10:51 Indeed. Since Wing is the sole contributor, all of the assets beneficially belong to Wing. It matters not whether the account is joint or not. Remember the purpose of the T1135 is to help ensure each taxpayer is declaring his/her foreign assets and paying taxes on the income from those assets.

If what Wing paid for the assets exceeds $250k CAD equivalent, i.e. cost, not market value, the detailed method will be necessary. It is not difficult to do that if all such assets are in a Canadian brokerage account. They don't have to be itemized. Just use Category 7 (as I do). I also report on Category 1 for my Wells Fargo bank account.
Yeah, all foreign assets are held at a Canadian brokerage so it doesn't cause much hassle even if I can't use the simplified method. So, now I need to make sure whether I should report all assets in the joint account under my T1135 or not. I definitely will be reporting all income/capital gains derived from this joint account in my tax return.
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Re: Questions on T1135

Post by Wing »

Looks like T1135 follows the income reporting portion of the joint account.

https://profile-en.community.intuit.ca/ ... -and-t1135

So, in my case if I'm reporting 100% of the income and capital gains in the joint account, I should be reporting 100% of the ACB of foreign assets in that account despite it's a joint account.

For exchange rates, should I use:

Dec 31 closing rate for "Cost at year end"?
Annual average rate for "Income" and "Capital gains/losses"?
Monthly average rate for "maximum cost amount during the year"?
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Re: Questions on T1135

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1. I think you meant Fair Market Value at Year End (not Cost) - I have typically used Dec 31st exchange rate at some point in the past, but December monthly rate is better in my opinion - see 3 below for reason. That said, CRA says using the 'last day of the month' exchange rate is perfectly valid.

2. Annual rate for recurring income during the year, but not for cap gains/losses that come from the sale of assets. Your cap gains/losses should come directly off the CAD equivalent of the day from Schedule 3 and that would be the exchange rate used in that calculation. Why would you want 2 different numbers for the same thing?

3. I also use monthly exchange rate for 'maximum fair market value amount during the year'. That is why I also use 'monthly' exchange rate in 1. above. If December happens to be the month for the 'maximum fair market value', then I don't see why FMV at year end should be different.
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Re: Questions on T1135

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AltaRed wrote: 06 Jan 2018 23:49 1. I think you meant Fair Market Value at Year End (not Cost) - I have typically used Dec 31st exchange rate at some point in the past, but December monthly rate is better in my opinion - see 3 below for reason. That said, CRA says using the 'last day of the month' exchange rate is perfectly valid.

2. Annual rate for recurring income during the year, but not for cap gains/losses that come from the sale of assets. Your cap gains/losses should come directly off the CAD equivalent of the day from Schedule 3 and that would be the exchange rate used in that calculation. Why would you want 2 different numbers for the same thing?

3. I also use monthly exchange rate for 'maximum fair market value amount during the year'. That is why I also use 'monthly' exchange rate in 1. above. If December happens to be the month for the 'maximum fair market value', then I don't see why FMV at year end should be different.
Thanks!

With further digging, I found this comprehensive Q&A that helps to answer almost everything about the T1135 in details, with CRA reviewed answers.
For others interested on the details: https://www.cpacanada.ca/en/connecting- ... -questions (click on the link under "list" for the pdf file)

For #3 above, CRA suggests to use month end rate for "maximum fair market value" as well, so that if Dec happens to the month of the max FMV, the year end value will also be the same.
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Re: Questions on T1135

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Wing wrote: 07 Jan 2018 11:54 For #3 above, CRA suggests to use month end rate for "maximum fair market value" as well, so that if Dec happens to the month of the max FMV, the year end value will also be the same.
Indeed. I don't think it matters whether you use the 'monthly' rate published by BoC, or the forex daily rate in effect on the last business day of the month. Being consistent is key. It's a minor nit either way given the primary purpose of the form is to disclose ex-Canada assets and their value on a CAD equivalent basis, and the income from those assets.
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Re: Questions on T1135

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Is the T1135 reporting requirement for $100,000 cad cost basis on a per asset basis or aggregate? Because if you have say 1 asset over 100k you have to report it but say you have a small foreign bank account with a few hundred dollars, is that reportable as well or can go under personal use items or below the threshold?
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Re: Questions on T1135

Post by kcowan »

It is aggregate.
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Re: Questions on T1135

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I see, so if you trigger the aggregate, then ALL foreign assets are reportable even a few dollars in a foreign bank account?
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Re: Questions on T1135

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scorpionman wrote: 08 Jan 2018 07:17 I see, so if you trigger the aggregate, then ALL foreign assets are reportable even a few dollars in a foreign bank account?
Absolutely. I always include the few dollars in my foreign bank account. I fill out Section 1 and 7 in the detailed reporting sections (having more than $250k CAD equivalent cost base in foreign assets). Note that a USD bank account held in a Canadian domiciled institution is not a foreign asset but funds in a US domiciled bank does count.
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Re: Questions on T1135

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I wonder who will have the first USD visa debit card in Canada without Forex conversion fees 😀
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Re: Questions on T1135

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scorpionman wrote: 08 Jan 2018 11:24 I wonder who will have the first USD visa debit card in Canada without Forex conversion fees 😀
No kidding. I realized I have a foreign bank account will less than $10 balance that I need to report on T1135. Luckily, for a second account also with less than $10 balance, that's joint and co-owner has been sole contributor for years (before my return to Canada) and cleared out the account before my return, leaving just a few dollars to maintain the account. That I don't need to report.
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Re: Questions on T1135

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AltaRed wrote: 07 Jan 2018 12:26
Wing wrote: 07 Jan 2018 11:54 For #3 above, CRA suggests to use month end rate for "maximum fair market value" as well, so that if Dec happens to the month of the max FMV, the year end value will also be the same.
Indeed. I don't think it matters whether you use the 'monthly' rate published by BoC, or the forex daily rate in effect on the last business day of the month. Being consistent is key. It's a minor nit either way given the primary purpose of the form is to disclose ex-Canada assets and their value on a CAD equivalent basis, and the income from those assets.
How about cash held at, say a US bank? What rate to use for highest cost during the year? It's possible to have a consistent balance in local currency (throughout the year) but a different year end balance in translated CAD and following years as well. So, that will make reported balances inconsistent and misleading. So, can we use year end rate for both "highest cost during the year" and "year end balance"?

For following years, should the balance in local currency not changed, still keep the translated CAD amount this year?
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Re: Questions on T1135

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It doesn't matter if the fair market value conversions to CAD equivalent vary...even if amounts in local, e.g. USD currency, are constant forever. It is understood forex rates change every day, every week, and every year.
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Re: Questions on T1135

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AltaRed wrote: 08 Jan 2018 14:33 It doesn't matter if the fair market value conversions to CAD equivalent vary...even if amounts in local, e.g. USD currency, are constant forever. It is understood forex rates change every day, every week, and every year.
Consider a foreign denominated bank account with 1,000 foreign currency worths 1,230 CAD reported on T1135 year end last year. The same amount worths 1,250 CAD in March (maximum cost during the year), spent 50, resulting 950 foreign currency at year end worths 1,300 CAD. No income during the year but a 50 foreign currency spending. Will this not:

1. Making it looks weird to report a lower year end amount than the "maximum cost during the year"?
2. Making it looks suspicious that there might be some income during the year not being reported (when comparing 2016 vs 2017 year end balance)?

Let's just hope the CRA is not using this kind of logic to fish taxpayers for an audit.
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Re: Questions on T1135

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Beats me but CRA minions should be smart enough to know the forex rate moves. Anecdotally, I've never been questioned on some 10+ years of so of different numbers, both maximum cost and year end.
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Re: Questions on T1135

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The 2018 Tax Package from TDDI includes a Foreign Property Report that is supposed to provide input for the T1135. I noticed my Foreign Property Report includes an entry for my shares of Brookfield Renewable Energy LP. That is not correct. Those particular shares should not be reported on the T1135, as they are not considered as foreign property. I've advised TDDI to correct this error.
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Re: Questions on T1135

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Arby wrote: 18 Mar 2019 16:55 The 2018 Tax Package from TDDI includes a Foreign Property Report that is supposed to provide input for the T1135. I noticed my Foreign Property Report includes an entry for my shares of Brookfield Renewable Energy LP. That is not correct. Those particular shares should not be reported on the T1135, as they are not considered as foreign property. I've advised TDDI to correct this error.
But I doubt if the Foreign Property Report is reportable by the Bank (TDDI, in this case) to CRA though. So, it doesn't matter if their report is correct or not as long as you report it correctly on your T1135.
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Re: Questions on T1135

Post by AltaRed »

I think Arby just wants a correct sheet, but I agree, the form has no other purpose than to assist one in filling out the T1135. I found the Scotia iTrade one helped a lot by reducing my work effort.
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Re: Questions on T1135

Post by Arby »

Yes, I understand the report is not sent to CRA. But the report is not of much use if it contains erroneous information. Some investors may take the incorrect numbers from the report and plug them into the T1135.
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Re: Questions on T1135

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A good deed you are doing to help others who may not be nearly as bright as you are. :thumbsup:
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