Is updated T1135 cause for celebration?

Note: This story has been updated with more guidance from CRA.

The updated T1135 will make it problematic to own more than $100,000 in foreign property.

Read: CRA updates T1135 form

New reporting requirements include the name of the specific institution holding funds outside Canada; the property’s specific country (before, only the region was required); and the dollar amount of income generated by the foreign property (if any).

“It’s now comparable to the U.S. FBAR,” says Kim Moody of Moodys Tax Advisors in Calgary. “It’s going to take significantly more time to fill out.”

Read: CRA beefs up foreign property disclosure requirements

But the updated T1135 includes a silver lining, says Jamie Golombek, managing director of tax and estate planning at CIBC in Toronto.

A new exclusion statement, “Where the reporting taxpayer has received a T3 or T5 from a Canadian issuer in respect of a specified foreign property for a taxation year, that specified foreign property is excluded from the T1135 reporting requirement for that taxation year.”

Golombek interprets this to mean certain people will no longer have to fill out the details of their foreign investments on this form.

He gives the example of a Canadian who directly owns $120,000 of U.S. stock in a Wood Gundy brokerage account. At the end of the year, she receives a T5 slip showing her dividend income. As of the 2013 tax year, she’ll no longer have to report that foreign investment on the T1135, although the form itself must still be completed.

“You already have it on your tax return, so why was there an additional administrative burden of having to fill out the form to give them information they already knew?” he asks.

Read: A late T1135 can be costly

To confirm his interpretation, Golombek obtained this statement from CRA:

“All Canadian taxpayers who hold shares of a U.S. (or foreign) company in a Canadian non-registered brokerage account are not required to provide the details of that particular foreign property on the T1135 for a taxation year ONLY where a T5 statement has been issued for those shares in that particular year. Where no T5 has been issued for a particular year, those shares must be reported on the T1135 for that year.”

Moody is more cautious, and would still report foreign share dividend income on the form, regardless of whether there’s a T5, due to “the companion law introduced in the federal budget: the extended reassessment period.”

If CRA finds any errors in the T1135 – it’s unclear if they’d penalize people for cosmetic errors, material errors, or both – it can extend the assessment period three years. That being the case, Moody’s not willing to take chances.

Read: Americans living in Canada face more tax considerations

Golombek says CRA’s administrative relief is good news. “No judge is going to hold you [accountable] if you follow that instruction,” he says.

Would someone would have to file the T1135 if they have other foreign property, plus dividend stocks adding up to more than $100,000? (For instance, if you own $60,000 in foreign dividend stock [and get a T5] and $50,000 in rental real estate, for a total of $110,000 in foreign property.)

Advisor.ca obtained guidance from CRA on this issue.

“The requirement to file a T1135 is based on the total cost amount of all specified foreign property held at any time in the year whether all, or any portion, of this property is subject to the reporting exclusion,” says CRA spokesperson Philippe Brideau (emphasis added).

So in the example given, you would have to file the T1135 since the foreign property totals $110,000.

“The taxpayer would check the reporting exclusion box because a portion of the foreign property (i.e. $60,000 of foreign shares) received a T5 in the year and is therefore eligible for the reporting exclusion. The details of the remaining $50,000 of specified foreign property would be reported in the appropriate table on the T1135,” says Brideau.

Read: Does your client have U.S. tax risk?

Moody notes a Canadian mutual fund with U.S. holdings was, and still is, exempt from the T1135 requirement.

As for what to tell clients, Golombek says, “Keep good records of your holdings. When you purchase something, you get a confirmation slip that will be evidence of the cost amount.”

Other updates of note:

• The T1135 can now be filled in electronically. The PDF is dynamic and allows preparers to add rows for each type of property. However, it still has to be printed and mailed to CRA.

• The form now asks preparers to indicate whether this filing represents an amended return. “They want to see if there’s some sort of mischief going on – previously unreported income they should be going after,” Moody says.

• The T1135 asks whether a person, or her spouse, is self-employed (individual code 1 or 2).

• If the T1135 applies to a partnership, CRA wants to know what kind (partnership code 1, 2 or 3).

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.