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Severe Penalties for Not Reporting Foreign Property

Subject: Foreign Reporting Number: 10-05 Date: 2/5/2010

Form T1135 includes a certificate of full disclosure to be signed by the taxpayer

The current T1 General tax return has a yes/no question:

“Did you own or hold foreign property at any time in 2009 with a total cost of more than CAN$100,000?”

Two particular points to note are “at any time in 2009” and “total cost.” The latter means that you have to report all foreign properties if their total cost exceeds $100,000 at any time in 2009.

If the answer is “yes,” Form T1135 – “Foreign Income Verification Statement” must be filed. The form requires categorization of each type of property and also includes a requirement to report the total income which was reported on the T1 return from the foreign property.

The explanations on the form are important. Highlighted below are some key points, but a careful review of the detailed explanations is essential.

Property that must be reported include:

• funds in foreign bank accounts
• shares of Canadian corporations on deposit with a foreign broker
• shares of non-resident corporations, wherever held
• foreign rental property 
• interests in foreign mutual funds
• an interest in a non-resident entity

and a number of other items.

Specific exclusions from reporting are listed. The most important are personal-use property, an interest in a foreign affiliate and property used in an active business.

Form T1135 includes a certificate of full disclosure to be signed by the taxpayer, with the annotation “It is a serious offence to file a false statement.”

Very severe penalties are provided for failure to file the form, for making false statements, omissions, etc. They range from $25 per day, minimum $100, to a maximum of $2,400. In certain circumstances there is a further penalty of $500 per month, maximum $24,000. A total penalty of 5% of the unreported amounts may apply after 24 months.

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