International FAQ #12 – What is a T1135?

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Tax Question:

What is a T1135 Foreign Income Verification statement?

Facts:

Many Canadian corporations are choosing to invest their money in foreign markets. When corporations invest in foreign markets, the Canada Revenue Agency (CRA) may or may not be aware of the investments. Therefore, CRA requires specified foreign properties to be disclosed to them.

Discussion:

If a corporation’s or individual’s total cost of specified foreign property at any time during its fiscal year is more than $100,000 Canadian, it will need to complete a T1135 Foreign Income Verification statement.

Specified foreign property includes (but not limited to):

Funds in foreign bank accounts
Debts owed by non-residents
Foreign rental properties
Interests in non-resident trusts
Shares of foreign corporations (even if held in a Canadian brokerage account)
Interests in a partnership that holds specified foreign property

Canadian-based mutual funds that hold specified foreign property are excluded from reporting. Shares in a related foreign corporation are also not included as these shares are disclosed on another statement, a T1134 Information Return Relating to Controlled and Not-Controlled Foreign Affiliates (see International FAQ #11).

For example, a Canadian corporation purchases $150,000 Canadian worth of shares in Apple Inc. During the year, 50% of the shares are sold leaving a cost of $75,000 Canadian by the end of the year. Since the shares were in a US company and the value of the shares were over $100,000 at one point during the year, the corporation would be required to disclose them on a T1135 statement.

The T1135 statement requires the disclosure of the country of the property, the maximum cost during the year, the cost at year end, income (loss) earned on the property during the year and the gain (loss) on disposition. Shares held inside an account with a Canadian registered securities dealer are required to disclose the maximum fair market value (FMV) during the year and FMV at year end.

The statement must be filed by the filing due date of the income tax return. Penalties for not filing on time are significant, $25 per day up to a maximum of $2,500. If your corporation has not filed yet as you were unaware of the filing requirements, the penalties may be waived if the information return is submitted under the Voluntary Disclosure Program (see FAQ #120).

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About the Author

Angela has been a CA since 2009 and joined our team in April 2012. She came from a downtown firm and has over eight years expertise in preparing financial statements and corporate tax returns for private companies.