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Own Foreign Property? The CRA Would Love to Know About It

The Foreign Income Verification Statement and Associated Late Filing Penalties

If you own property outside of Canada, be aware of your reporting obligations.  

The Income Tax Act imposes strict reporting obligations regarding the ownership of certain foreign properties, via its requirement to file the “infamous”[1] Foreign Income Verification Statement (Form T1135). For any Canadian resident who has property abroad, knowledge of, and compliance with, this filing requirement is important so as to avoid penalties. 

The T1135 Filing Requirement 

The T1135 filing requirement is found in section 233.3 of the Income Tax Act. It applies to most types of Canadian-resident taxpayers who own “specified foreign property” with a “cost amount” of more than $100,000 at any time in a given tax year (or fiscal period of a partnership). This form is required to be filed on the same date that a taxpayer’s tax returns would be due. 

So, what is a “specified foreign property”, and when does it have a “cost amount”? 

Specified Foreign Property 

Specified foreign property has a very broad definition which, in general, captures foreign passive investments regardless of whether those investments generate income. It includes, among other things:  

  • any funds, tangible or intangible property situated, deposited or held outside of Canada,  
  • any foreign stocks, 
  • debts owed by a non-resident person, and  
  • any interests in foreign entities[2].  

Properties that are used in an active business and personal-use properties (which are used primarily for the personal use or enjoyment of a taxpayer or related person) are specifically excluded from the definition, alongside other more limited exclusions.  

The Canada Revenue Agency (the “CRA”) has indicated that this definition potentially includes foreign life insurance and retirement plans, foreign bank accounts, cryptocurrencies held abroad, and vacant or unused real estate. 

Cost Amount 

The cost amount of the specified foreign property is a taxpayer-specific value that is generally based on what the taxpayer paid for the property.[3]  

This value can, however, be modified by certain events, such as a change of national residence, or modified by the mode in which the property was acquired, such as by inheritance.[4]  

Outside of the general definition, a debt owed by a non-resident person has a cost amount equal to the amount that the taxpayer is entitled to receive.  

Specialized rules also apply to the cost amount of depreciable properties (as defined in the Income Tax Act), to account for the loss of value over time (depreciation), that these properties experience.  

The Late-Filing Penalties 

If a T1135 is not filed on time then the Income Tax Act automatically provides for a penalty of $25 per day, up to a maximum of $2,500, for each failure to file.[5]  

In addition, if the CRA determines that the failure to file was done “knowingly or under circumstances amounting to gross negligence” and the failure lasted for 24 months or less, then the taxpayer can receive total penalties of up to $12,000.[6] If it lasted for more than 24 months, then the total penalties become the greater of $12,000 and five percent of the taxpayer’s highest value of specified foreign property during the tax year or fiscal period at issue.  

For example, if someone owns specified foreign property with a cost amount of $1,000,000, then they can face a maximum penalty of $50,000 for failing to file a T1135. 

The CRA is also given three additional years to reassess a taxpayer’s tax year if they have failed to file a T1135, so long as they also failed to report income from their specified foreign property for that same filing period.[7] For most taxpayers, this extension of time allows the CRA to assess these penalties up to seven years after a notice of assessment has been issued for a given year.  

Recent Cases 

The T1135 late filing-penalties often surprise Canadians who were not otherwise required to file a tax return, as was the case in the recent Federal Court decision of Sharma v. Canada (National Revenue) (“Sharma”). This case, and others such as Takenaka v. Canada (Attorney General) (“Takenaka”), show that the CRA does not necessarily grant discretionary penalty relief just because a T1135 late-filer had no tax owing.  

While the taxpayer in Sharma was unsuccessful in his appeal regarding the penalties, the Court in Takenaka held that the CRA unreasonably denied penalty relief to a party that “sincerely did not believe she was required to file the T1135 form by the deadline”.  

The Tax Court has also provided for a due-diligence defence to the automatically applied late-filing penalty, even though no such defence exists in the Income Tax Act.[8] 

In Conclusion 

The penalties associated with the T1135 filing requirement can be large and unexpected. Fortunately, there are opportunities for relief, either through the CRA’s discretionary relief programs or through the courts.  

It’s important to remember that the T1135 is a reporting obligation. There are no additional taxes associated with filing this form. Given the choice between no extra taxes, and penalties and interest, it is in all taxpayers’ best interests to file this form with their tax return each year. 

This article was written by Tax Lawyer Keenan Fast. If you have been assessed for these penalties by the CRA, or if you believe that you missed a T1135 filing deadline, contact the tax team at McKenzie Lake to find out how we can assist you.  


[1] As it was described by Justice Fournier of the Tax Court in Fiset v The Queen, 2017 TCC 63 at para 4. 

[2] Income Tax Act, s 233.3(1) “Specified foreign property”.  

[3] Income Tax Act, s 248 “cost amount”. See also the Government of Canada’s FAQ, Questions and answers about Form T1135,  

[4] Income Tax Act, ss 128.1(1)(b) and (c); s 70(5)(b). 

[5] Income Tax Act, s 162(7). 

[6] Income Tax Act, s 162(10).  

[7] Income Tax Act, s 152(4)(b.2).  

[8] Douglas v The Queen, 2012 TCC 73