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. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Thursday, February 27, 2014

T1135 Foreign Reporting – This is Relief?

I have previously written about the onerous new reporting requirements the revised T1135 Foreign Income Reporting form imposes upon Canadian taxpayers who have over $100,000 (cost) of foreign holdings. While most accountants understand and can live with the additional detail required for foreign assets located outside of Canada, most of us could not understand why the CRA persisted on detailed reporting for foreign stocks and bonds held at Canadian institutions. The CRA’s position is/was that if a foreign security held at a Canadian Institution did not pay a dividend and thus was not reported on a T3 or T5, you had to separately detail that security. For many taxpayers, that could mean detailing 15-25 securities for stocks from Berkshire Hathaway to Netflix.

Despite protestations from various accounting bodies, the CRA held firm in its position. Over the last couple months, the financial institutions began to wake up to the reality that providing this information to its clients and/or accountants was a massive project which its systems were not designed for.

Well yesterday, for 2013 only, the CRA provided some mild transitional relief.

Foreign Property and Unit Trusts held with Canadian Registered Securities Dealer


Taxpayers who held foreign property in 2013 in an account with a Canadian registered securities dealer may now report the combined value of this property, rather than reporting the details of each property. A taxpayer that chooses this reporting method must use it for all accounts with Canadian registered securities dealers.

Why is this Relief Problematic?

The CRA says that if you want to file using a combined value of all your foreign property, they want you to file using Category 6 of the T1135 Form. However, Category 6 requires you to report the maximum cost amount of your foreign holdings during the year and the cost of all those foreign holdings at the end of the year.

Thus, unless the revised form changes these requirements for Category 6, you or your investment advisor will need to somehow determine what was your maximum cost of your foreign holdings during 2013, not an easy chore by any means.

Unless the form changes, you need to pick your poison. Your choice is:

1. Provide a listing of any specific stocks that did not pay dividends and the maximum cost for those specific stocks and the cost at the end of the year, or

2. Search your daily records to determine what were the maximum cost of all foreign holdings during the year and the cost at the end of the year of any foreign holdings.

Bloggers Note: Of course after I wrote the above, the CRA has just released an updated T1135 Form. The instructions for Category 6 have been revised for transitional reporting. For the maximum cost amount, you do not need to determine any value, just enter "0". For the cost amount at the end of the year, enter the market value of your foreign property at the end of 2013.

Thus, in summary, if you do not wish to report specific securities not paying dividends, you can use the transitional reporting method and all you need is the fair market value at the end of 2013. Why could the CRA not say that in their initial press release?

Filing Extension

The CRA is also extending the filing deadline for Form T1135 for 2013 to July 31, 2014. Yippee, tax season gets further extended.

My Sentiments Exactly

Moodys Gartner Tax Law summed up this whole issue very well in their excellent tax blog: “While the transitioning rules are certainly welcome, it appears that the CRA is still not wholly listening to tax accountants in Canada. Today’s announcement does not provide a permanent solution for the large amount of criticism with respect to the “T3/T5” exception. Many tax accountants were hopeful that all specified foreign property held by Canadian registered securities dealers would be excluded given the low risk for tax evasion involved with these accounts.”

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.