Subsection 233.3(1) - Definitions
Specified Canadian Entity
Administrative Policy
13 March 2015 T.I. 2014-0547721E5 - T1135 reporting for a trust
A trust whose sole beneficiaries are exempt under 149(1)(c) does not have to file a T1135 as per s. (a)(viii) of the definition of "specified Canadian entity."
19 July 2000 T.I. 1999-000969 -
In a situation where a Canadian partnership held 99.99% of a US partnership which, in turn, held 99% of a second US partnership, the second US partnership would be the reporting entity because it is a partnership referred to in (b) of the definition of "specified Canadian entity", and the first US partnership would not be a reporting entity as it would not own any specified foreign property by virtue of the exception in (o) of the definition thereof.
Specified Foreign Property
Administrative Policy
16 April 2015 T.I. 2014-0561061E5 - Specified Foreign Property
A Canadian corporation invests in a foreign partnership which, in turn, invests in digital currency (e.g. Bitcoins) and uses currency arbitrage/exchange and other trading methods to increase the net asset value of the fund in a foreign currency. Is the foreign partnership interest "specified foreign property"? CRA responded:
[D]igital currency would be funds or intangible property and would be specified foreign property of a person or partnership to the extent that it is situated, deposited or held outside of Canada and not used or held exclusively in the course of carrying on an active business. …
Based on the limited description…the digital currency would be held outside of Canada and would not be considered to be used or held exclusively in the course of carrying on an active business. As such, the digital currency would be specified foreign property… and the interest in the foreign partnership (to the extent the partnership is not a specified Canadian entity [under para. (o)]) would be specified foreign property of the Canadian corporation.
12 May 2014 T.I. 2014-0517021E5 - 233.3 - Definition of Specified Foreign Property
An individual ("Mr. X"), resident in Canada owns all the shares of Canco, having a cost amount higher than $100,000. Canco owns all the shares of Forco having a cost amount higher than $100,000. CRA stated:
[T]he shares of Forco would not be specified foreign properties of Mr. X, as Mr. X does not have an interest in, or a right in Forco. …[T]his expression does not apply to indirect shareholding. … However, the shares of Forco would be specified properties [sic] of Canco pursuant to paragraph (c) of the definition of specified property [in] subsection 233.3(1)… .
24 February 2014 Memorandum 2013-0484461I7 - specified foreign property
A Canadian resident makes a loan to a general partnership of which he is member and non-residents also are members. CRA stated that "the rule in paragraph 96(1)(a) of the Act deeming the partnership to be a person does not apply for the purpose of section 233.3. " However, under the foreign law under which the Partnership was formed and the provisions of the partnership agreement "the partners of the Partnership are jointly and severally liable for the debts incurred by the Partnership." Accordingly:
the Loan represents indebtedness owed to the (Canadian resident) by a non-resident person(s) and therefore constitutes "specified foreign property"…because… for the purposes of paragraph (g) of that definition, each of the partners would be considered to owe the full amount of the indebtedness incurred by the Partnership.
Subsection 233.3(3) - Returns respecting foreign property
Administrative Policy
17 March 2015 T.I. 2014-0529371E5 - T1135 reporting for emigrant
An individual emigrates July 1, 2013 owning shares of non-resident corporations (that are not foreign affiliates) with a total cost amount of $500,000. Is the maximum cost amount during the year on the Form T1135 determined by looking at the cost amount to the emigrant from January 1, 2013 to July 1, 2013, even though the taxation year of the emigrant is the 2013 calendar year? Can the cost amount at year end be shown as zero? Must the individual report specified foreign property that was acquired after emigration but before the end of the taxation year on Form T1135? CRA responded:
While the Act technically allows for the CRA to require information on specified foreign property for the entire calendar year…the CRA will only require information relating to the period during which an individual was resident in Canada. Therefore, …the individual can complete the Form T1135 as if the taxation year ended on the date of emigration.
[T]he deemed disposition rules in subsection 128.1(4)…may apply upon emigration. In that case, the individual would report an end of year cost amount of nil… .
[S]ince the taxpayer will be completing the Form T1135 on the basis that the taxation year ended on the date of emigration, [post-emigration] transactions and properties will not be reportable.
The transitional method still applies to an individual who emigrates in 2013.
21 August 2014 T.I. 2014-0527611E5 - T1135 for Deceased Individual
An individual died on July 1, 2013, owning shares of non-resident corporations (that were not foreign affiliates) with a cost amount of $500,000. Should the cost amount at year-end be reported as nil? Should the maximum cost amount for the year be determined based on the period from January 1, 2013, to July 1, 2013, even though the taxation year of the deceased is the 2013 calendar year? CRA responded:
[Although] the reporting period is the calendar year…since the taxpayer is deemed to have disposed of the property immediately before death, the relevant period for determining the maximum cost amount for the year will be from January 1 until the date of death.
…Since the taxpayer disposed of the property on the date of death, the cost amount of the property held at year-end would be nil.
CRA, Revised Form T1135, Foreign Income Verification Statement 26 February 2014 [2013 transitional reporting method]:
[F]or the 2013 tax year only, the CRA will assist taxpayers to transition to the new requirements [for expanded reporting in the revised T1135] 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)...) 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)...) 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... .
See revised Form T1135.
10 June 2013 STEP Roundtable Q. , 2013-0485761C6
The extension of the normal reassessment period under draft s. 152(4)(b.2) - where (a) there has been a failure to file the T1135 as and when required or to provide therein the required information in respect of a specified foreign property, and (b) to to report an amount, in respect of a specified foreign property, that is required to be included in the taxpayer's income - applies for all purposes and not just to income derived from the unreported foreign assets.
U.S. shares or U.S. bonds held in a U.K. brokerage account should be coded as U.S. as "it is the residence of the corporation that issued the shares or the residence of the bond issuer that is relevant… ." Where there are gains and Canadian losses, only the foreign gains are reported on the T1135.
Articles
Maureen Vance, "T1135 – The Saga Continues", Tax Topics, Wolters Kluwer, Number 2248, April 9, 2015, p. 1.
Difficulties in preparing T1135s with brokerage-provided information (p. 2)
Investment dealers have made considerable efforts to put systems in place to provide the information needed to complete the T1135, which was particularly challenging considering that the requirement to segregate investments on a country-by-country basis only became known when the revised form was issued last summer. However, tax preparers may find that the availability and quality of this information will vary greatly from one dealer to another, as well as between types of accounts. For example, very little (if any) information appears to have been provided for taxpayers using many of the popular discount brokerage accounts. Even where there is information available, you may have to double-check to ensure that the properties have been properly classified. For example, brokerage statements often classify Canadian mutual funds with foreign investments as "Foreign Property" for purposes of asset allocation. However, Canadian mutual funds are not specified foreign property and are not to be reported on the T1135. Similarly, the brokerage statement may classify a property such as a foreign mutual fund or an exchange-traded fund ("ETF"] according to the location of the investments rather than the location of the issuer of the mutual fund or ETF.
Forms
T1135, Foreign Income Verification Statement: As indicated in a news release on the CRA website dated 26 June 2013, the CRA is instituting stronger reporting requirements in T1135 "to crack down on those who attempt to cheat the system." CRA stated:
Starting with the 2013 taxation year, Canadians who hold foreign property with a cost of over $100,000 will be required to provide additional information to the Canada Revenue Agency (CRA). The criteria for those who must file a Foreign Income Verification Statement (Form T1135) has not changed; however, the new form has been revised to include more detailed information on foreign property.
Increased reporting requirements include:
- the name of the specific foreign institution or other entity holding funds outside Canada;
- the specific country to which the foreign property relates; and
- the income generated from the foreign property.
The CRA will use the additional information to ensure all taxpayers comply with Canadian tax laws, through activities including education and audit.
(CRA has indicated, however, that it will accept old T1135 forms filed for taxation years ending no later than 30 June 2013.)