John Richardson

Introduction – Form T1135 is a “Penalty Jackpot” for the Canada Revenue Agency

Penalties

This provides information (including a table of penalties and frequently asked questions) about penalties for late or improperly filed forms and information returns.

Failing To File

The penalty for failing to file a return is $25 per day for up to 100 days (minimum $100 and maximum $2,500). This penalty does apply to Form T1142.

When failing to file is done knowingly or under circumstances amounting to gross negligence, the penalty is $500 per month for up to 24 months (maximum $12,000), less any penalties already levied. This penalty does not apply to Form T1142.

After 24 months, the penalty is 5% of whichever of the following resulted in the requirement to file the information return, less any penalties mentioned above already levied:

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John Richardson

This is a post about Canada’s foreign asset reporting requirements. Previously, I introduced Canada’s Foreign Asset Reporting Requirements. This post will focus specifically on Form T1135 as it applies to individuals. Individuals are disadvantaged because they may or may not use professional tax advisers.

Form T1135 is a “compliance trap” and can lead to serious penalties for inadvertent noncompliance. (The case of Takenaka v AGC, 2018 FC 347 will be of great interest to U.S. citizens moving to Canada who retain their home in the United States and fail to report its use as a rental property. Ditto for certain U.S. life insurance policies.)

This post is for the purpose of helping individuals understand Form T1135 and the reporting obligations it implies. Obviously this is general discussion and not advice specific to your situation. Form T1135 reporting requirements are surprisingly complex. The Canada Revenue Agency is surprisingly unforgiving for “foot faults” in relation to this form.

Part A: Parsing the language – what is the basic Form T1135 reporting requirement?

If you want to understand the law it’s a good idea to begin with reading the law (make a note of that point). In this case the text of the law is found in Section 233.3 of the Income Tax Act of Canada (a not particularly obscure statute).

This post will guide you through the statute. Please note that all words in italics (whether bolded or not) are my personal commentary/explanation.

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John Richardson

Prologue

Last week I received a call from one of the many Americans abroad living (not hiding out) in Canada. He did NOT know about his U.S. tax obligations. Therefore, he has not been filing U.S. taxes. Interestingly, he had a portfolio of U.S. stocks (foreign to Canada) which were providing him with a consistent dividend stream. He (naturally) had been reporting all of the these “U.S. dividends” on his Canadian tax return. He had never heard of Form T1135 and the relatively new requirement that he report certain “foreign assets” to the Canada Revenue Agency.

Looks like he may have been headed for “double trouble”.

Form Crimes: They’re not for everybody – but they could be for you!

I’ve been told, but I don’t know, that single citizenship Canadians are sometimes jealous of dual U.S./Canada citizens. Those dual U.S./Canada citizens living in Canada, are sometimes thought to have more opportunities than “pure Canadians”. With all the media attention on the United States imposing worldwide taxation on (U.S. citizen) Canadian residents, many Canadians pay more attention to how the U.S. tax system affects them, than on how Canada’s tax system affects them. “Pure Canadians” are often in awe of the “form related” penalties to which their dual citizen neighbours are subject. Think of it: A U.S. citizen in Canada can be fined hundreds of thousands of dollars for failing to report (to U.S. financial crimes) his local Canadian bank account. But, this is just one of many opportunities for penalties.

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