Category Archives: Canada Information Returns

The Moore case – A recent Form #T1135 taxpayer victory

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This is the fifth post in my series of posts about Canada’s Foreign Asset reporting requirements. The first post described the range of Foreign Asset reporting requirements. The second post discussed the conditions which trigger the requirement to file Form T1135. The third post focuses on how to complete and file Form T1135. The fourth post was a short summery of the penalties for failing to file T1135. This fifth post is about the recent Moore case which was an example of taxpayer victory in resisting the draconian and unreasonable Form T1135 penalties.

The Judgement of Boyle, J really speaks for itself.

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Failure to file Canada Foreign Property Returns – #T1135 – Penalties and voluntary disclosure

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

To be FORMwarned is to be FORMarmed!

On July 14, 2019 the text on the page referenced in the above tweet included:

Penalties

This page 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:

– the cost of the foreign property

– the fair market value of the property transferred or loaned to the trust

– the cost of the shares and indebtedness of the foreign affiliate

– Note – This penalty does not apply to Form T1142.

The CRA may issue a demand to file a return to a person or partnership under subsection 233(1) of the Income Tax Act. If so, and if the person or partnership knowingly or under circumstances amounting to gross negligence fails to comply with the demand, the penalty is $1,000 per month for up to 24 months (maximum $24,000), less any penalties already levied.This penalty does apply to Form T1142.

False statements or omissions

A penalty applies to people who knowingly or under circumstances amounting to gross negligence make false statements or omissions in an information return.

For Form T1142, the penalty is the greater of either:

– $2,500 or
– 5% of whichever of the following the false statement or omission was made about:
– the fair market value of the distributed property or
– the indebtedness

For the other information returns, the penalty is the greater of either:

– $24,000 or
– 5% of whichever of the following the false statement or omission was made about:
– the cost of the foreign property
– the fair market value of the property transferred or loaned to the trust or
– the cost of the shares and indebtedness of the foreign affiliate

Due diligence exception for penalties

The penalty for omissions on Forms T1134 and T1141 does not apply to taxpayers who make diligent efforts to get the requested information and who:

– disclose in the return the unavailability of the information and file the information within 90 days of it later becoming available

A “Table Of Penalties” may be found here.

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John Richardson – Follow me on Twitter @Expatriationlaw

A Form T1135 Primer – How to complete and file Form T1135

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Possible Updates!! Note that this was written in July of 2019. You should use this as a guide but make sure to work with the current rules (they have likely changed).

This is the third post in my series of posts about Canada’s Foreign Asset reporting requirements. The first post described the range of Foreign Asset reporting requirements. The second post discussed the conditions which trigger the requirement to file Form T1135. This third post focuses on how to complete and file Form T1135.

For many individuals, the threshold question of WHETHER you are required to file Form T1135 will be more difficult than HOW to file Form T1135.

This post ASSUMES that you have met the reporting threshold and focuses on:

1. A review of whether Form T1135 is required

2. What information is required to be reported on the T1135

3. How to complete Form T1135

4. Where/how to file Form T1135

Form T1135 is available on the Canada Revenue Agency site here.

I have also uploaded the form.

t1135-17e

You should print the form and have it available while you read this post. Form T1135 has broken the different categories of assets into seven different categories of foreign property.

Here we go …

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A Canada Form T1135 Primer – Parsing the language and understanding the basic reporting requirement

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The purpose of this post …

This is the second of my posts about Canada’s foreign asset reporting requirements. The first post introduced Canada’s Foreign Asset Reporting Requirements. This post will focus specificlly 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. 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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Like FBAR, Form 8938, Form 3520 and Form 5471 – Canada has its own foreign asset reporting rules

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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 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 with on the FBAR – his local Canadian bank account. But, Mr. FBAR affords dual citizens living in Canada just one of many opportunities for penalties.

As an example of more …

Q. What if a dual citizen fails to report his ownership interest in a small Canadian corporation?

A. A $10,000 automatic penalty (is the penalty indexed to inflation?) penalty.

(Form 5471 is how Americans effectvely enrolled in the TCJA Section 965 Transition Tax and Section 951A GILTI programs.)

Yes, these penalties are for failing to comply with the extensive battery of U.S. reporting requirements – AKA “Form Crimes”. Although some commentators call these reporting requirements “trivial”, Gary Carter, in a post at Tax Connections, has exposed these penalties as the dangers they are, to those American abroad who attempt the Sysphean task of complying with the U.S. tax system.

Bottom Line: To be an American citizen living outside the United States is to live under constant threat of penalty (and considering the Section 965 Transition tax) asset confiscation. As previously reported at Tax Connections, Americans abroad live life in the penalty box.

Irrational as it may be, many Canadians wonder:

As a Canadian citizen, who is a tax resident of Canada, am I not eligible for penalties too? Why should dual Canada U.S. citizens have all the penalty exposure?

I am happy to report that the Canadian tax system has penalties for you too! (And, lest any dual U.S./Canada citizen living in Canada think that these penalties are ONLY for single citizen Canadians, well you are subject to these penalties too.) Yes, although not as well known or understood, you have NOT been left out. Yes, you can be subjected to significant (but not as significant as what U.S. citizens are eligible for) penalties for failing to report your “foreign” interactions/circumstances.

This is the first of a series of posts to explain how you as a Canadian only, who is a “tax resident of Canada”, can be penalised for reporting violations!

Let’s get started …

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