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, April 3, 2017

T1135 - Some Guidance on Common Issues

I have written multiple blog posts over the last few years on the T1135 Foreign Reporting Income Verification Statement. I have no interest in writing one more time on how to complete the form, but I thought I would provide you some guidance on some common questions I receive.

U.S. Bank Accounts and other Foreign Accounts

Cash situated, deposited or held outside of Canada even if in Canadian dollars is considered specified foreign property and subject to reporting on the T1135.

So, if you hold a $U.S. denominated bank account with a Canadian Financial Institution, you do not need to include the account on your form T1135. However, if you have a bank account with a U.S. or foreign bank you must include that account on your T1135.

Mutual Funds & ETFS

Mutual funds that are resident in Canada do not need to be reported, even if they hold foreign stock. However, any mutual funds not resident in Canada must be reported.

To the best of my knowledge, the CRA has not definitively answered how to treat ETFs. What they have said is that for the purposes of country reporting, the residency of the mutual fund or exchange traded fund itself is the country of the investment. Thus, one can seemingly infer that ETFs that are resident in Canada would be excluded from reporting. That may be easier said than done and some people make that determination based solely on whether there is a Canadian tax slip issued (inferring the ETF is thus Canadian resident). How is that for an opaque answer? 

Canadian Stocks denominated in $U.S. 

A Canadian stock denominated in $U.S. held at a Canadian brokerage does not need to be reported on the T1135. It is residence of the issuer that is the determinative issue, not the denomination.

Joint Ownership

Jointly owned investments must be split for purposes of the T1135. Thus, if you and your spouse jointly own U.S. stocks with a cost of $160,000 Cdn, you are each considered to own $80,000 of U.S. stocks. Each spouse must then independently calculate whether they have other foreign assets that would cause them to exceed the $100k threshold (i.e. you have more than $20k in other foreign assets).

Personal Use Property

If you own a personal use property outside of Canada, it is excluded from reporting. This will include a U.S. Condo, European Villa, time share or similar property. If there is incidental income, that income does not disqualify the property, as long as the primary use is personal use. This can be very subjective, so be careful.

New Immigrants and Returning Residents

An individual does not have to file Form T1135 for the tax year in which he or she first become resident in Canada. However, if you were formerly a Canadian resident and are returning, the exemption does not hold and you must file a T1135 from the entire year.

Gross Income for Rental Properties

The T1135 form asks you to report your income for real property. One would think that means you are required to report the net rental income (gross rental income less rental expenses), however, you are supposed to report just the gross rental income on the form and ignore the related expenses.

The above guidance is based on various CRA comments and CRA documents I have read. The CRA is not bound by any of the above, so I take no responsibility for the accuracy of the above guidelines.

Note: I am sorry, but I do not answer questions in April due to my workload, so the comments option has been turned off. Thus, you cannot comment on this post and past comments on other blog posts will not appear until I turn the comment function back on.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.