T1135 gets another facelift

CRA has made more revisions to form T1135 – Foreign Income Verification Statement.

These changes will make it easier to meet the new reporting requirements.

“We’re very pleased with the outcome,” says Barbara Amsden, managing director of the Investment Industry Association of Canada (IIAC). She was part of an industry group that worked with CRA to identify difficulties posed by last year’s T1135 revisions.

“CRA understood how difficult it was going to be to comply…. There’s still work to be done by taxpayers and accountants, but the issues that were causing advisors and clients to pull their hair out have been largely addressed.”

The two main problems raised by the previous round of revisions, Amsden says, were:

• Determining highest cost
• Identifying country of residence of the security

(Read this Advisor’s Edge Report article for more detail from Amsden on these concerns.)

FORM CHANGES

These are the new instructions in the “Categories of Specified Foreign Property” section:

2013 Transitional Reporting Method – For the 2013 tax year, taxpayers are permitted to use a 2013 Transitional Reporting Method. See instructions for Category 6 “Other property outside of Canada” for details as to how to report under this method.

T3/T5 Reporting Exception – Where the taxpayer has received, or will receive, a T3 or T5 from a Canadian issuer for all of the income earned in respect of a specified foreign property for the particular tax year, that specified foreign property may be excluded from the Form T1135 reporting requirement for that tax year. The T3/T5 reporting exception cannot be used for an account with a Canadian registered securities dealer if the 2013 transitional reporting method has been used for any other account with a Canadian registered securities dealer. (emphasis theirs)

CATEGORY 6

In the previous version, Category 6 simply says, “This category should include any property that does not correspond to any of the other categories.”

The new form adds the following:

2013 Transitional Reporting Method:

For the 2013 tax year, the following Form T1135 reporting method is permitted:

1. Canadian registered securities dealer reporting method

A taxpayer who held specified foreign property in an account in the taxpayer’s name (or jointly with another taxpayer) with a Canadian registered securities dealer (as defined in subsection 248(1) of the Act) is permitted to report the aggregate amount of all such property held in that particular account in Category 6 “Other property outside of Canada”. A taxpayer who chooses to use this reporting method must use it for all accounts with Canadian registered securities dealers.

2. Unit trust reporting method

A unit trust (as defined in subsection 108(2) of the Act) resident in Canada is permitted to report the aggregate amount of all specified foreign property it held in Category 6 “Other property outside of Canada”.

If the 2013 transitional reporting method is being used, provide the following information:

“Description of property” – enter the name and account number of each Canadian registered securities dealer account (or the name of the unit trust) on a separate row;

“Country code” – enter CAN;

“Maximum cost amount during the year enter” – enter “0”;

“Cost amount at year end” – enter the market value of all specified foreign property held in that account (or by the unit trust) at the end of the particular tax year;

“Income (loss)” – provide the total income earned on all specified foreign property held in that account (or by the unit trust) at any time during the particular tax year;

“Gain (loss) on disposition” – provide the total gross gain or loss realized on the disposition of all specified foreign properties held in that account (or by the unit trust) at any time during the particular tax year.

CRA COMMENTS

A CRA statement on the revisions says:

“[F]or the 2013 tax year only, the CRA will assist taxpayers to transition to the new [reporting] requirements by permitting streamlined reporting for certain specified foreign property on Form T1135.

“Specifically, a taxpayer who held specified foreign property in an account with a Canadian registered securities dealer (as defined in subsection 248(1) of the Income Tax Act) may now report the combined value of all such property at the end of the tax year, rather than reporting the details of each property. This combined value should be included in Category 6 of Form T1135, ‘Other property outside of Canada.’ If a taxpayer chooses to use the 2013 transitional reporting method, the taxpayer must use this reporting method for all accounts with Canadian registered securities dealers.

“In addition, unit trusts (as defined in subsection 108(2) of the Income Tax Act) now have the option to report the combined value of all of their specified foreign property in the same manner for their 2013 tax year.

“The CRA is also extending the filing deadline for Form T1135 for the 2013 tax year to July 31, 2014 for all taxpayers, in order to provide further assistance in the transition to the new reporting requirements.”