Last month, Harper Government announced new requirements for Canadians with foreign property and income. Parliamentary Secretary said that our Government is committed to combating tax evasion and getting tough on tax cheats.
The strengthen Foreign Verification Statement (T1135) is one of the new measures to crack down on international tax evasion and aggressive tax avoidance.
Canadian-resident taxpayers who own a foreign property over a $100,000 are required to file an information return where at any time in the year the cost of the foreign property exceeds $100,000. The T1135 return must be filed on or before the due date of the taxpayers’ income tax return.
Examples of the property you have to report are:
- Shares of the capital stock of a non-resident corporation
- An interest in partnership that holds a specified foreign property
- Tangible property outside of Canada
- A debt owed by a non-resident
- An interest in foreign insurance policy
- Any personal use property, such as Florida condominium for personal use and enjoyment, do not need to be reported. Property used in carrying on an active business does not need to be reported as well.
For 2013 and later taxation years, the form T1135 has been revised to include more detailed information on such property, such as:
- Name of specific foreign institution or other entity holding funds outside Canada
- Specific country to which the foreign property relates
- Income generated from the foreign property
In addition, the 2013 federal budget proposes to extend normal reassessment period for a taxation year of a taxpayer by three years if the taxpayer has failed to report income from foreign property on the tax return, and the form was not filed on time by the taxpayer.
Failure to report foreign property and income from it can result in significant penalties, interest, and taxes payable on the foreign income.
In addition to the new filing requirement, the Government proposed other strong measures to combat international tax evasion and aggressive tax avoidance. These include:
- The new Stop International Tax Evasion Program
- The mandatory reporting of international electronic funds transfers over $10,000 to the CRA
- Streamlining the judicial process that provides CRA authorization to obtain information from third parties such as banks.
The Harper Government also recently announced the creation of a dedicated team to implement these measures and a $30million investment to target international tax evasion and aggressive tax avoidance.
