Declare your Foreign Property, including Stocks to Avoid Penalty

Did you know that the penalty for late filing of the T1135 form is $25 per day to a maximum of $2,500, plus arrears interest?

Yes, that is why if you held foreign property whose total cost is worth more than $100,000 at any period during 2021, you may be required to file a T1135 Foreign Income Verification Statement form with the Canada Revenue Agency when you file your 2021 tax return this spring.

It’s crucial to understand the rules for declaring foreign property on your tax return as a Canadian. Whether you were born and raised in Canada or are a recent immigrant, you must report any foreign property you hold when filing your tax return.

Bank accounts, stocks, bonds, and real estate are all examples of foreign property. You must declare your stocks and bonds even if they are held in Canadian brokerage accounts. Any assets held in registered accounts such as registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), and tax-free savings accounts (TFSAs) are excluded, as well as personal use property such as a vacation home abroad. 

Declaring Foreign Property on Your Tax Return

When submitting your tax return, you must answer the question “Did you own or hold foreign property with a total cost of more than CAN$100,000 at any time during the year?” You must complete Form T1135, if you answer “yes” to this question. If you are a Canadian resident, own a foreign corporation or trust, or are a partner in a foreign business, you must fill out this form.

Canadians have been required to declare foreign property worth more than $100,000 since 1997. If you missed to submit this form previously, you can file a Voluntary Disclosure to avoid paying hefty fines. Include T1135 forms from previous tax years with your disclosure when you do this.

Specified Foreign Property

Some taxpayers may believe that “foreign property” just refers to real estate, but it actually pertains to a lot more.

Some instances of foreign investment property that you must include on Form T1135 are as follows:

  • A life insurance policy you own from a foreign issuer
  • Interest you own in any offshore mutual funds
  • Any real estate you own held outside Canada
  • Money in a foreign bank account
  • Shares you own of a foreign company
  • Interest you hold in a non-resident trust
  • Bonds or debentures owned from foreign countries
  • Any other income you earn from foreign property.

Foreign Property You Don’t Need to Declare

You don’t have to declare all foreign property worth more than $100,000 on your tax return.

Besides assets held in registered accounts such as registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), and tax-free savings accounts (TFSAs), you can also exclude the following types of foreign property:

  • Any property you own primarily for personal use, including your automobile, cottage, paintings and jewelry
  • Any property you use for running a business like a building, equipment and inventory

Remember that just because a company’s stock is traded on a foreign stock exchange doesn’t imply you have to report it as foreign income. Many Canadian companies are traded in this method, and you don’t have to include them in your $100,000 foreign property limit.

We are here to help if you have questions on reporting your foreign property. Feel free to contact IDM Professional Corporation CPA.

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