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Transitional 'Relief' For the New Foreign Reporting Forms T1135

Subject: Foreign Reporting Number: 14-04 Date: 3/4/2014

we do not think they go far enough and are too short lived

New disclosure requirements for foreign investment holdings were announced on June 25, 2013 for taxation years ending after June 30, 2013.  Tax Tip 13-09 discussed the new Form T1135 and its expanded reporting requirements. Since the announcement, there has been significant concern expressed by tax professionals because of the intense amount of information required, the impracticality of obtaining some of it and the fact that the normal re-assessment period for an entire tax return is extended from 3 to 6 years if an error or omission is made.

On February 26, 2014, the Canada Revenue Agency (“CRA”) announced transitional reporting guidance in respect of prescribed Form T1135 for taxpayers who own specified foreign property with a cost of $100,000 or more. The CRA also updated its questions and answers.

Prior to the new transitional measures, a reporting exclusion was provided if the taxpayer received a T3 or T5 slip from a Canadian issuer in respect of a particular specified foreign property.  However, if the taxpayer held a specified foreign property with a Canadian registered securities dealer, which was not reported on a T3 or T5 slip (as the property did not generate any income), the  particular security would still need to be reported by the taxpayer under the expanded T1135 requirements.  This requirement has been the subject of a large amount of criticism.

The recent CRA announcement provides two transitional provisions but such relief is only applicable for a taxpayer's 2013 tax year:

1. The deadline for filing the T1135 for a taxpayer's 2013 tax year has been extended to July 31, 2014; and
2. If a taxpayer does not use the "T3/T5" exclusion the year end value of foreign property held in an account with a Canadian registered securities dealer may be reported on a combined basis rather than reporting the details of each security (as required by the changes to the T1135 announced in June 2013).

The transitional relief does not provide a permanent solution to the criticism in respect of the “T3/T5” exception.  There are many other issues that have not been addressed by the CRA as well.

Many were hopeful that all specified foreign property held by a Canadian registered securities dealer would be excluded, on a permanent basis, from the new requirements, given the low risk for tax evasion involved with these accounts. 

While the transitional relief is certainly welcome, we do not think it goes far enough and its application is too short lived.  We are hopeful that the CRA will continue to work with the tax community to develop a more balanced and reasonable approach to expanding foreign reporting requirements.

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