My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, September 2, 2013

The Revised T1135 – This Could Get Ugly for Taxpayers, Investment Advisors & Accountants

I’m back from a summer of hiking and golfing. I had a great time going east to west across Canada. Specifically, I went with my wife to Gros Morne National Park in Newfoundland which was incredible (pictures and blog to follow in the next few weeks). This was followed by a boys’ golf trip to Predator Ridge in Vernon, BC, a short drive from Kelowna. I could not ask for much more; except for the course marshals at Predator to take some chill pills.

Western Brooke Pond
Newfoundland
All this crisscrossing of Canada did not leave me much time to work on my book so I am still sitting on two chapters; I either get traction this fall or the book dies an early death. I also did not take any of the guitar lessons my wife bought for me, but I intend to book lessons in the fall, so watch out Jimmy Page.

The T1135


To provide some symmetry to my return to blogging, I start off where I left off. You may recall that my last blog discussed the revised T1135 Foreign Income Verification Form ("T1135"). In that post I discussed the new reporting requirements, which now includes the following:

  • The name of the specific foreign bank/financial institution holding funds outside Canada
  • For each foreign property identified on the T1135, the maximum funds/cost amount for the property during the year and cost amount at the end of the year (the old form only required the cost amount at the end of the year if at anytime in the year you exceeded the threshold)
  • For each foreign property identified on the T1135, the income and capital gain/loss generated (the old form asked for total income or gains from all foreign property in one lump sum)
  • Specific country where each foreign property is located (the old form had pre-defined groupings based on each continent for all the property on an aggregate basis) 

The T3/T5 Exclusion


I concluded my July 2nd post by saying that “There is one important saving grace to these rules. If the income for a foreign property is reported on a T3 or T5, the details do not have to be reported. This will exempt most U.S. or foreign stocks held with Canadian brokerages; but the details for property held outside Canadian institutions will be burdensome”.

While the above statement is essentially correct, the CRA’s administrative position in regard to this exemption may prove problematic. You see, the CRA is saying that even where you hold a foreign stock or bond in an account with a Canadian brokerage firm that issues a T3 or T5 for that account; if that security does not pay income in the form of a dividend or interest and thus is not reported on the T3 or T5, the specific stock or bond will not be excluded and will have to be reported in detail on the T1135. This position was recently confirmed by a CRA representative to one of my tax managers.


In addition, it must be noted you will still be required to file the T1135 if the total cost amount of your foreign holdings exceeds $100,000 at anytime during the year, even if dividends or interest is reported on a T3 or T5. See the example discussed in this article by Jamie Golembek, where the CRA representative states you would still need to file the form and check the reporting exclusion box for the stocks reported on a T-slip.

The Tax to English Version

 

So what does this all mean in English? Say you own 25 foreign stocks held at a Canadian brokerage that have a total cost of $150,000, but five of those stocks do not pay dividends or fail to pay a dividend in that year. As we now understand the CRA’s position, even though the 20 dividend paying stocks do not need to be individually listed, the 5 non-dividend paying stocks must be reported. Thus, you will need to tick the box on the T1135 Form to claim the exclusion for the 20 stocks, but you will also have to determine the highest cost amount of each of the five non-excluded stocks during the year (troublesome if you bought and sold) and the cost amount at the end of the year in addition to providing other information such as country location and capital gain or loss.

In the example above, if all 25 stocks pay dividends that will be reported on a T3 or T5, you will still have to file the T1135 and check the exclusion box; however, you do not need to report all the details of each individual stock. Clear as mud.

For people with only a few foreign holdings, this is not much of an issue. However, I have clients who are in private client programs with the large Canadian financial institutions that own 20-50 shares of multiple foreign stocks or have private managers running their money who have upwards of 50 U.S. and foreign stock/bond holdings. This means that the client, the advisor, or their accountant, or probably a combination of all three must review all these stocks to determine which ones are exempt from reporting because they paid a dividend or interest that was reported on a T3 or T5 from those that did not have any income reported on a T3 or T5.

My tax manager said the CRA representative he spoke with, gave him the impression that the CRA’s position has not gone over very well. Let’s hope the CRA simplifies life for many Canadians and just exempts any foreign security held at any Canadian Institution whether income is reported on a T-slip or not.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

89 comments:

  1. Welcome back. Love to see some of your own travel pictures - your own original photography. You did take a camera with you right?

    ReplyDelete
    Replies
    1. Thx Robert:

      Yes, my wife is the family photographer and in a few weeks I will have an entire blog devoted to my day by day travels with original pics.

      Delete
  2. Wow! I think it's a good thing I don't have many US/international investments.

    Am I correct in believing that if the US/International stocks are held in an RRSP or TFSA that the owner does NOT have to file a T1135?

    And welcome back! I'm looking forward to seeing the photos from Gros Morne. It's been many years since I was there last.

    ReplyDelete
    Replies
    1. Hi Bet:

      I hope u had a good summer.

      U r correct, no T1135 required for RRSP or TFSA.

      Gros Morne is a beautiful place, hopefully my pics will do it justice.

      Delete
  3. Hi Mark,

    Welcome back. Sounds like you had a relaxing summer. When do you start do you start doing that full time!
    If I am unincorporated self employed offering services to some US clients I have some US stock holdings, and trade receivables from a couple of US clients. The receivables are non interest bearing and are always paid within 30 - 60 days. Do I include those receivables as foreign holdings? Does CRA look at those receivables as debt or as being incurred as part of my business and not included? If I was incorporated would the receivables be looked as debt or just as an asset from my business? Thanks.

    ReplyDelete
    Replies
    1. Hi Anon:

      Relaxing full-time? Ha, one child still in University and one just finished, unfortunately, not for many more years :(

      The CRA states a debt for purposes of the T1135 owed by a non-resident, includes government and corporate bonds,debentures, mortgages and notes receivable. A/R are not included in the CRA list, nor have I ever heard of the CRA expecting A/R to form part of a T1135 filing.

      Delete
  4. Great, detailed post. I expect nothing less :)

    Welcome back Mark!

    I think you answered this question above, but I was going to clarify, securities held in these registered Canadian accounts are exempt from foreign income reporting: RRSPs, TFSAs, RESPs, RRIFs, LIRAs, LRIFs and RPPs.

    How is the golf game this summer? I just recently bought this for my bag:
    http://taylormadegolf.ca/TaylorMade/RocketBallz-Stage-2-Rescue/DW-JN927,en_CA,pd.html?start=1&cgid=taylormade-rescueClubs-allCurrentModels

    Love it!

    Cheers,
    Mark

    ReplyDelete
    Replies
    1. Hey Mark

      I hope you had a great summer.

      Registered accounts are exempted from T1135 filings

      The only rocket balls I launched this summer where into the trees, I could use your launcher.

      See u in a few weeks.

      Delete
  5. I hope you enjoyed your trip to Newfoundland. I've always wanted to go there but have been reluctant to since I don't speak the language.

    I wonder if this new reporting requirement will entice consumers to invest primarily in Canada? I already pretty much do that anyway, so not expecting much problem for me (despite some criticism of the idea, I'm content to go with the basic idea that a Canadian dollar is a Canadian dollar, and not take currency risk or anything else that goes with investing outside of Canada).

    And this looks to be just for investment income? I have income from the U.S., but it's earnings income not investment income.

    Ah well. I have a simple solution to these difficulties. I let the accountants figure it out.

    ReplyDelete
    Replies
    1. Hey Glenn:

      This may be a pain in the butt, but I would still look to diversify my holdings across the world, but I get where u r coming from.

      Does not relate to earnings income.

      Delete
  6. Please note thst the revised from states that the taxpayer must have received a T3 or T5 to claim the exemption.

    For taxpayers that do not have a December 31 year-end (e.g., corporations, some trusts), can they apply for the exclusion. If a corporation has a July 31, 2013 year-end, they have only RECEIVED a T3 T5 for the period August 1, 2012 to December 31, 2012. They WILL Receive the T3 T5 for the 2013 calendar year in February 2014 - after the filing due date.

    Any thoughts on this, as I have been communicating with the ITSO since June 26, 2013.

    ReplyDelete
    Replies
    1. Hi Stephen:

      I have had no reason to even consider the question as of yet, but it is a good question. However, I would argue that for an off calender year, I received a T3/T5 that included income for at least part of the year and thus I am exempt because I have received a Tslip. I would assume the CRA would agree, but who knows. If I find out along the way I will post the answer.

      Delete
    2. Thanks for the reply.
      I must admit that I had asked CRA in writing that if the US stock held at a Canadian brokerage pays no dividend (e.g., GOOGLE) requires detailed disclosure, yet Apple (pays a dividend) would be exempt - I think it makes little sense - I have not had a CRA representative confirm to me what was confirmed to your tax manager. Is this in writing anywhere?

      Delete
    3. Hi Stephen

      No we did not get it in writing, only verbally. I also checked around with a couple well connected tax people to the CRA who held the same opinion. However, it would be great if the CRA clarified this and other issues with an new example sheet.

      Delete
  7. Ugh, what a pain. The non-Dec. 31 year end is of interest to me too.

    Also, say I own 100 shares of a US stock (or ETF) and receive a quarterly dividend. I then purchase 10 more shares, but do not receive any more dividends before year end. Is the entire holding exempt because I have income shown on a t-slip, or does that only exempt the original 100 shares? (Logic would suggest the whole thing would be exempt since anything else would be brutal to try and manage, but that doesn't necessarily count for much it seems!)

    Second question. Was just reading the FAQ and came across this: "The $100,000 threshold is cost-based, that is, it's the 'cost amount' as defined under subsection 248(1) of the Income Tax Act. It is not based on the fair market value or an indexed amount."

    Is the "cost amount" equivalent to the adjusted cost base? If so, at least that's simpler than trying to work with market value.

    ReplyDelete
    Replies
    1. Hi Nathan:

      I have been asked about your first question before and we are trying to confirm with the CRA. Practically, it would appear the only answer can be if its on the tslip that falls within the corporate year end it is exempt (even if you buy more) but we have yet to have that confirmed. Another issue is if you buy a stock after December and say your year end is May. How does that work. ie: you buy Macdonalds in February and receive a dividend in March, but no tslip reflecting that dividend until the next year.

      Cost amt is essentially the ACB.

      Delete
  8. Hi,

    If I had $100,000 of a US ETF (VT vanguard total world) in my RRSP account and $70,000 of the same US ETF in my non registered account, would I need to fill in the T1135? My total is $170,000 but my RRSP is excluded from the T1135.

    ReplyDelete
  9. Hi Stephen,
    If the stocks are purchased thru leverage/margin trading, and the actual cost is way less than the holding.
    For e.g. Contribution: $30K Leverage: $70K Total Position: $ 100K net Liquidation value: $ 30K in an non-registered account at Canadian Broker, would that still trigger reporting required for the T1135 form ?

    ReplyDelete
    Replies
    1. Who the heck is Stephen, wrong blog, so I wont answer the question.

      Just joking, sort of. I don't follow your question. Margin allows you to borrow to buy a stock. If you buy a stock for $100 with $70 cash and $30 margin, your stock cost is still $100 for purposes of the T1135.

      Delete
    2. If you own 125k in Google stock which was purchased with 75k cash and 50k margin, and if US cash count as foreign property than your total foreign property should only be 75k (125k-50k) and therefore not meet the 100k threshold and form T1135 should not be filed. Am I correct in this

      Delete
    3. Hi Ron

      No, your cost of the Google stock is still $125k, the CRA does not care if you bought with cash or margin

      Delete
  10. Hi, This seems that CRA is making this as difficult as possible, which I guess is good for your fee income! I have a couple of questions. First, at present if all my foreign holdings (which are in excess of $100k) are in a Cdn brokerage account and the income is on a T3 or T5 I do not need to fill out the new form, correct? This will result in me having had to file a form 1135 in the past but not going forward. Second if the facts in the first question are the same but I sell some securities at a capital gain or loss, does that mean that all my income has not been subject to a T3/T5 and hence I have to fill out form 1135? I would not think so since the brokerage firm has sent in my trading summary to CRA but unsure.

    Thanks for your help

    ReplyDelete
    Replies
    1. Hey Anon

      This type of fee income is never worth the effort. We will never recoup our time, I rather not have to deal with this during a hectic tax time.

      Anyways, as of now, you will need to file the form, even though you will tick the exclusion box (assuming all the stocks are dividend paying) and have no details to report, which is sort of ridiculous and will cause mass confusion. We are hoping the CRA makes a late amendment to this. My understanding as of now is the gains on investments related to excluded properties do not need to be reported, however, that is not 100% clear at this point either.

      Delete
    2. Thanks, it almost sounds like CRA wants is making it confusing so that you report more than you need to. If a tax expert is unsure of the process how can a judge figure a regular person can figure it out! Please post more info if it ever becomes available.

      Delete
    3. will do, I have a ruling request into CRA on many of the unclear points and also I have been told by a little birdie that the CRA may make some changes

      Delete
    4. Hi, wondering if you heard back on your ruling or of any changes? Would you know if CRA will be publishing a "tax guide" specifically for the form?

      Delete
    5. Hi Anon

      The CRA has not yet responded to our ruling request. My little birdie was wrong, the CRA has decided not to make any changes, this is going to be a nightmare and I dont think investment advisors are aware of the onslaught of work they will be getting, let alone taxpayers and accountants.

      Delete
  11. I'm very concerned about how onerous this is on individual investors.

    What about options? In the past year I have employed all of the following strategies on foreign stocks such as C, CAT, JPM:
    -sold cash secured puts
    -sold covered calls
    -bought and sold in-the-money calls

    What will I need to report?

    Thanks in advance
    William

    ReplyDelete
    Replies
    1. Hi William, I have not really looked at this issue, since any of my clients with options have been so far over the $100k threshold. The only small discussion I have seen is this, see comments section--I will see if I can find something out and if I do will add as a comment in the future

      http://howtoinvestonline.blogspot.ca/2013/04/foreign-income-assets-avoid-nasty-t1135.html

      Delete
    2. Have you an amswer on options reporting ? I'm way over the $100K & trade 100's of options in a year. What is the reporting requirement for options, included or not .

      Delete
    3. Hi Anon:

      For reasons I will not go into, I had no real need to do much follow up on this. Thus, I cannot provide a definitive answer. If I was you, I would be conservative and report whatever FMV is reflected on your investment statements for the options and calls etc you have a Dec 31, 2013, using the transitional rule.

      Delete
  12. Mark if I have a USD account with canadian bank say RBC . USD Amount should not be counted towards 100000 CAD Limit.pleade clarify.
    Thanls

    ReplyDelete
    Replies
    1. that is my understanding- only funds in foreign bank accounts must be reported.

      Delete
  13. Mark, nowhere else other than in your blog have I found, that registered accounts (RRSP, RRIF, etc.) are excempt from the T1135 reporting requirement. The CRA Q & A page 'http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/frgn/1135_fq-eng.html'
    does not mention it. Where on the CRA websites can this information be found?

    ReplyDelete
    Replies
    1. Not sure where it says it on CRA site-- this article says it as well as well as several others if you google- call the CRA if you are concerned

      http://www.advisor.ca/tax/tax-news/alleviate-reporting-headaches-for-offshore-investments-130485

      Delete
  14. Hi Mark, I have $200,000 share in the non-resident company in south asia and the company net loss ending 2013 is $10,000. Since I hold 90% share in the company, my portion of loss is: $9,000.

    In T-1135 section-2, should I mention: Maximum cost amount during the year $200,000. - Cost amount at year end $191,000. - Income/Loss: -$9,000 ? is that Capital Gain/Loss also will be -$9,000?

    ReplyDelete
    Replies
    1. Hi Rahman:

      I cant answer that. In general If you own shares, it is typically the corporation that picks up the loss not you and your cost is not adjusted. However, there are various tax rules related to foreign investments and I have no idea if you fall into any of those rules. U should speak to your accountant.

      Delete
    2. Hi Rahman, If you own 90% of the company (assumed voting?), it is a controlled foreign affiliate. You do not report controlled foreign affiliates on T1135. They are reported on T1134.

      Delete
  15. Or the Income/Loss will be: $0.00 and Gain/Loss on Disposition will be: -$9,000?

    ReplyDelete
  16. Hi Mark,
    If I hold all my US securities where I receive a T3 or T5, do I just check the box indicating the exclusion and have nothing else to fill in other than my name address, signature etc? This seems very confusing. Thanks for you help.

    ReplyDelete
    Replies
    1. Yes, if all the US securities paid a dividend reported on a T3 or T5. If you hold say a Netflix that does not pay a dividend, it must be reported seperately.

      Delete
    2. Thanks, very confusing, so if all US my securities pay dividends and are held at a Cdn brokerage house and hence have a T3 and T5 I do not even need to disclose amounts as that is not required on the T1135. Somehow the form appears very vague for what it is trying to cover almost trapping people to have to pay a penalty. If the form is filed but there is an honest error will I be subject to the draconian penalties?

      Delete
    3. Accountants are really confused at what the CRA is trying to accomplish here. Everyone understands the reporting of assets not held at a Cdn institution (CRA looking at worldwide assets) but have no clue why they are creating such an admin headache for assets not on a t3 or t5 held at Cdn institution. Plus, the reality is that anyone reporting on a T1135 is probably not evading tax and those who probably are evading tax are not reporting anyways.

      Delete
  17. I have about 20 US-listed stocks, but only one that doesn't pay a dividend, so I checked the Exemption checkbox and listed the one non-dividend paying stock which I bought in 2012 and still hold, would I just report the initial cost in both the "Maximum cost amount during the year" and "Cost amount at year end" and put a 0 for "Income/Loss" and "Gain/Loss at Disposition"? Thanks! This could indeed get very messy for lots of people!

    ReplyDelete
    Replies
    1. Hi Anon

      Yes, the max cost and highest cost are the same unless you purchased more shares. There is now a transitional rule for this year, see my blog from a week and a half ago, but since you did this work, I would just stick with what u did

      Delete
  18. I purchased a house for $100,000 in 2010, market value according to my 2013 US Tax Assessment is $70,025. I rent it out for 3 months of the year for total income of $6000. Outgoing costs to run the house are $11,515. On my T1135 form under 5. Real Property under Cost amount at year end do I enter $70,025 or $11,515? Income (loss) $6,000? and I am not sure what to enter for Gain (loss) on disposition? On my tax form my operating loss is -$5,515.

    ReplyDelete
    Replies
    1. Hi Anon:

      Assuming your property is not a personal use property, which based on the rental it is probably not, you need to report the following:

      Maximum cost and cost amount at end of the year are the same unless you made capital improvements in 2013- that cost would be the original purchase price of $100k you noted above plus any capital improvements in 2010-2012 (You cannot use the transitional rule for real estate and report the market value), your loss is what you report on your T776 statement of rental and unless you sold the property, you don't report anything in the gain/loss column

      Delete
    2. Thank you very much Mark! That helps.

      Delete
  19. Hi Mark,
    I purchased property for $ 50K and have other foreign investments worth $ 60K with Canadian brokerage with income for which T5 has been issued. I assume that given cumulative value of foreign assets is over $100K, form T1135 would be required.
    For the real property outside Canada on form T1135(other than personal use), I am claiming depreciation. My depreciated cost for property is $ 45K for the tax year. What would be the maximum cost and year end costs be in form T1135, assuming no other capital improvements are made for the tax year ?

    ReplyDelete
    Replies
    1. Hi Anon:

      Depreciation is not the cost, although relevant for recapture. The cost is what you paid for the entire land and building when purchased plus any improvements. Thus, the cost and maximum cost are one and the same for you.

      Delete
  20. I have a TD Waterhouse US brokerage account which had greater than $100,000 US in cash during 2013. Does this this need to be reported on the T1135. Note that there was no interest income paid on the cash balance.

    ReplyDelete
    Replies
    1. Hi Anon:

      The instructions on the form say you must include "Funds held outside Canada--Funds held outside Canada include money on deposit in foreign bank accounts...

      Delete
    2. Just to clarify the account is with the TD Waterhouse office in Canada. With them I have a CND trading account and a US trading account. The US cash was in the US trading account. Is this considered a foreign bank account?

      Delete
    3. Hi Anon

      I think the answer is very clear if you read what the CRA says, "funds held outside Canada". I don't give specific answers on purpose.

      Delete
  21. I must say I am utterly confused with this new form and my problem starts with the definitions of the terms used by the CRA. What does maximum cost amount during the year and cost amount at year end mean? I own a property in the UK which I purchased in 1999 for about GBP 60K. I moved to Canada in 2006. I have been renting the property since then.
    How do I fill in section 5 of the T1135 form? I have no idea what the value of the house was in CAD in 1999 or 2006. I also hold some funds in France and the UK for a value of about 30K CAD. In 2013, my rental income was about GBP 8.4K before expenses, or GBP 5.5K after expenses. What do I put on the form?
    Help please.

    ReplyDelete
    Replies
    1. Hi Anon

      First of all, you should engage an accountant, you have some issues that need sorting out. You need to obtain a valuation for the property when you came to Cda.

      For real property, the cost amount for most Canadian's is what you paid for the property plus any capital improvements over the years. The Maximum cost will usually be the same as the cost amount unless you made capital improvements during the year. However, in general, when you come to Canada , your cost amount becomes the fair market value the day u came to Cda. So if you purchased a property for $60k and it is worth $90k the day you came to Cda, the $90k generally becomes your cost.

      I don't provide personal tax planning on this blog and don't know all the facts, so you should have an accountant assist you in filing this year and sorting out your cost base. I would suggest you file your return on time, but don't file the T1135 and have a consult with an accountant and then file the T1135 before the extended July 31st deadline

      Delete
  22. Hi Anon,
    I spoke with CRA and asked them if the cost of property for purposes of the 100,000 limit was considered to be the original cost of buildings plus cost of land or the depreciated cost of buildings plus land and they informed me that it was the latter. Would you agree with this?

    ReplyDelete
  23. Hi Mark,

    I you have bought a US stock 100 shares for $10 = $1000, than bought again 100 shares for $13 = $1300 and than sold it all 200 shares for $15 = $3000.

    My question are:
    Maximum cost amount during the year is $2300?
    Cost amount at year end is zero?
    Gain on disposition is $700?
    Am I correct?

    Thank you.

    ReplyDelete
  24. Hi Mark,

    Your blog is excellent! Thanks for covering the T1135 in detail.

    I have a question on taxation of foreign bank accounts. If I have a foreign bank account (principal amount exceeding 100k CAD) and earn CAD &10,000 as interest income in 2013 do I just add the amount to my total 'world income' and get taxed according to the slab on my total income or is foreign investment income taxed differently?

    Thank you.

    ReplyDelete
    Replies
    1. Hi anon

      If I follow ur question the $10,000 in interest income is taxable on schedule 4 as foreign income and if u had any foreign tax withheld u would get a tax credit by completing the FTC form

      Delete
  25. Hi Mark
    I own a condo in Florida worth roughly $150,000? It is used only for vacationing for 4 months of the year. It is not used to earn any rental income and just sits empty the remainder of the year. For the last 4 years my tax preparer has filed a form t1135. we moved and I am preparing my own taxes this year. When I read the guide I get the impression that the form never needed to be filed as this would be considered a personal use property as its just used for vacation. Am I correct in the way I look at this? Also if this form has been filed the past 4 years and all of a sudden is not filed, will this cause a red flag with CRA?

    Thanks

    Thanks

    ReplyDelete
    Replies
    1. Hi Anon

      U r correct, personal use property is excluded. I can't say with certainty, but I don't think the non filing will cause an issue and even if it did u have done nothing wrong

      Delete
  26. Hi Mark,

    I am looking at ceasing to rent a foreign property, just not worth the hazzle!! I'm not going to sell the property, but I know that ceasing to rent it will mean a deemed disposition. What kind of documents does one have to submit to CRA to confirm the FMV?

    Many thanks,


    John

    ReplyDelete
    Replies
    1. Hi John

      I would never stop renting a foreign property if it is generating positive cash flow. The form is a pain in the butt, but it is not that hard to complete for rental properties, it takes 5 minutes max.

      If you stop renting, I would speak to an accountant to understand what if any tax consequences there would be.

      Delete
  27. Hi Mark,
    On several blogs and the form itself it's mentioned that an interest in a foreign insurance policy must be declared. I haven't seen any example or further explanation on this. I'm a joint beneficiary on a foreign first-death life insurance policy. The policy is worth 45,000 euros on payout, but when combined with other property I am over the 100,000 CDN limit. My question is, how is an interest is such a policy to be declared on this form ? The insurance premiums are paid monthly. Is the cost amount the total premium paid to date ? And how would I calculate "Maximum cost amount during the year" and "Cost amount at year end" ? Thanks in advance. Mike

    ReplyDelete
    Replies
    1. Hi Mike:

      I have no clue how the CRA expects anyone to provide this info unless their insurance company calculates the information for them. On the CRA's website the CRA was asked this question

      13. Does a life insurance policy issued by a foreign issuer meet the definition of specified foreign property? If yes, how is the cost amount of a foreign insurance policy determined?

      Yes, a life insurance policy issued by a foreign issuer meets the definition of specified foreign property. The "adjusted cost basis" of an interest in a life insurance policy is defined in subsection 148(9) of the Income Tax Act. This amount can be considered as a reasonable approximation of the cost amount of the property for the purpose of Form T1135.

      148(9) is a very complicated section and the info is typically provided by an insurance company, most accountants (including me) would have trouble determining this amount, let alone the cost to do so would be exorbitant. Hopefully there is some acb number on your policy

      Delete
    2. Hi Mark,

      Thanks for the reply. I've dug a bit further and have some info that might be of use to your lay readers like me (I assume this is old hat to you).

      Firstly, in my original post I mentioned the value of the policy, but now see that this is irrelevant. The policy could be worth millions or hundreds, but what is relevant for reporting is only the ACB. I'm not sure many people would have insurance policies whose ACB exceeds $100,000 (I could be mistaken, you can see I'm not playing in the big leagues), but disclosure of such policies would be required anyway as long as the total foreign property value by cost base exceeds that amount.

      Secondly, it does in fact appear that the ACB, in a very general sense, is simply the sum of the premiums paid to date. There are many, many adjustments - I looked up the section of the tax code on JusticeLaw and found the formula. It has 13 terms, each of which probably requires training, experience, and an understanding of common practice to be able to fill in.

      I did find an explanation guide published by the DoF, which is here: www.fin.gc.ca/drleg-apl/lip-pav-n-eng.pdf. There's also a summary of court and CRA interpretations of the ACB calculation in this act, published by a private company, here: http://taxinterpretations.com/?page_id=1111

      Finally, I agree that calculating the ACB is going to be beyond many or most ordinary taxpayers, keeping in mind that owners of foreign property are not necessarily savvy high flying investors with access to international tax accountants. For example, many like myself are in this situation through happenstance and immigration, nothing more.

      For now, I've concluded I am just going to report the ACB as the sum of the monthly premiums paid over the years, using the annual average currency conversion rate instead of the monthly one, to minimize the number crunching. The total amount will be piddling, and I can't see how it makes a material difference to my current or future tax situation to have to report this annually. What an unnecessary burden.

      Delete
    3. Hi Anon

      Thx for your info. As I stated in my reply, the CRA said the adjusted cost base or ACB is the key, not the insurance value. The ACB is a complicated calculation typically done by the insurance companies. However, if you do not have this value noted on the policy, your calculation is probably as good as you can do.

      Delete
  28. Hi Mark,

    Thanks for the effort that you put into this great blog. I hope that you can help with this. During 2013 I sold a holding in an overseas mutual fund which I had held for several years. The sale generated a six figure cash amount. I eventually transferred the cash back to Canada but it did sit in an overseas account for several weeks before it was transferred. I understand that I should report the details of the mutual fund in section 6 of the T1135 but should I also report the cash in Section 1 even though the cash arose from the sale and to report it would essentially be reporting the same funds twice?

    ReplyDelete
    Replies
    1. Hi Anon

      I had the exact same issue and we decided to do what you said, section 1 and section 6, since we felt it technically fell into both categories, even though it was a duplicate reporting.

      Delete
  29. The TFSA looks to become a good place to hold foreign equities with NO reporting requirements. With a current cumulative maximum of 31,000.00, this will be of more use to my 30 year-old son than myself, but it's one more reason to love the TFSA!

    Mike FG Smalley

    ReplyDelete
    Replies
    1. Hi Mike

      Yes, but if u hold only foreign equities you would want to make sure your overall asset allocation is still in sync.

      Delete
  30. Hi Mark, I understand for 2013 there is a Transitional Reporting Method for specified foreign property held through a Canadian registered securities dealer. All of my specified foreign property is held in my TD Waterhouse discount brokerage account. Am I safe to assume this would qualify?

    ReplyDelete
  31. Hello,

    The cost base of my US stocks in my Canadian investment brokerage account is less than $100,000 CAD - let's assume $99,000 CAD. I do however hold USD cash within that same account . Is the USD cash excluded from the $100,000 CAD threshold for the T1135?

    ReplyDelete
    Replies
    1. This discussion on the PWL Capital website
      ( https://www.pwlcapital.com/en/Advisor/Waterloo/Graham-Westmacott/Blog/Graham-Westmacott/March-2014/Tax-Tip-Do-I-Need-to-File-a-T1135) contemplates your question:

      "For individuals with investments outside registered accounts, the form must be completed if the aggregate cost of all investments exceeds $100,000 CAD at any point during the year. For example, if you have $50,000 in a US bank account and $60,000 cost of Microsoft shares, you must file a T1135 because the cost of your total foreign investments are C$110,000, above the C$100,000 threshold"

      Delete
  32. Hi bean counter,
    I filed a T1135 last year and applied the average foreign exchange rate
    to get the "cost amount" of some inherited stocks in a foreign bank in Canadian dollars. question is : for those stocks (which I still have) and haven't added to or sold, do I report the cost amount for the 2014 T1135 at the 2013 exchange rate as that was when I received them----or revise the cost amount to this years exchange rate? I think it is leave at 2013 exchange rate but not really sure.
    Thanks a lot!

    ReplyDelete
    Replies
    1. Cost amount is a historical amount, thus it does not change from 2013 unless you purchase additional shares

      Delete
  33. Hi Mark,

    I have reviewed your blog and all of the questions and answers you have provided. It is impressive and has provided me with almost all the information I need to assist my mother in completing her T1135. I do have one question which I don't think you have answered. I think I know the answer, but was hoping you could assist me in confirming if I am correct.

    My mother inherited shares in a foreign company in 2003. She has not bought or sold anything since they were inherited. Am I correct in assuming I need to look up what the value of those shares was on the date of death and then use that as both the Maximum cost amount during the year and the Cost amount at the year end for section 2 of the T1135?

    She also has term deposits and a cash account, but I believe I have figured out how to complete that stuff in section 1.

    Thank you in advance!

    Cheers,
    Jill

    ReplyDelete
    Replies
    1. Hi Jill

      For Cdn tax purposes, the value of the shares upon inheritance became your mom's new ACB and if she has not bought or sold any shares, then that would also be her maximum cost.

      Delete
  34. Hi there,

    I have a question regarding the T1135 form. If I own less than $100k equity in a foreign property (say $80k if i sold tomorrow) but the value of the property is over $200k do I still have to file a T1135 form?

    Thanks

    ReplyDelete
    Replies
    1. Hi Anon

      The filing is based on the cost of the property. If the cost is less than $100k u do not have to file

      Delete
  35. I've lived and worked abroad for many years before moving to Canada and I have a superannuation account overseas of over $100,000 which is a mandatory retirement account. I cannot withdraw from this superannuation as I am not retired. Is this an example of "funds in a registered retirement, income or pension plan" for which I am not required to report?

    If I don't need to report it now, do I need to report payment from a superannuation fund on T1135 when I start withdrawing from it upon retirement or do I just include the payment in Line 115 - Pensions from a foreign country? Many thanks for considering my questions.

    ReplyDelete
    Replies
    1. Hi Anon

      I do not provide specific advice on this blog. The cRA states that "Assets held in a foreign registered pension account (IRA, 401K)" are excluded from reporting. Your plan likely fits that exclusion but I cannot provide a definitive answer.

      Delete