Form T1135 (Foreign Income Verification Statement) Filing Requirements

Canadian investors holding specified foreign property with an aggregate adjusted cost base (ACB) of more than CAD$100,000 at any point during a tax year are required to complete Form T1135 (Foreign Income Verification Statement).  The T1135 is filed along with your personal (T1) or corporate (T2) tax return.

The CAD$100,000 threshold is based on the maximum total ACB of all specified foreign property during the tax year.  This is a Canadian dollar amount (ACB must always be calculated in Canadian dollars).  It is not based on the fair market value of the foreign property.  It is based on the maximum total ACB throughout the tax year, and therefore you may be required to file Form T1135 even if your ACB at the end of the tax year is below the threshold.  The CRA allows you to use either the maximum month-end total ACB of all specified foreign property, or the maximum total ACB at any point of the year.

Specified foreign property includes the following:

• funds or intangible property (patents, copyrights, etc.) situated, deposited or held outside Canada
• tangible property situated outside of Canada;
  a share of the capital stock of a non-resident corporation held by the taxpayer or by an agent on behalf of the taxpayer
• an interest in a non-resident trust that was acquired for consideration, other than an interest in a non-resident trust that is a foreign affiliate for the purposes of section 233.4 of the Act
• shares of corporations resident in Canada held by you or for you outside Canada;
  an interest in a partnership that holds a specified foreign property unless the partnership is required to file Form T1135
• an interest in, or right with respect to, an entity that is a non-resident
• a property that is convertible into, exchangeable for, or confers a right to acquire a property that is specified foreign property
• a debt owed by a non-resident, including government and corporate bonds, debentures, mortgages, and notes receivable
• an interest in a foreign insurance policy
• precious metals, gold certificates, and futures contracts held outside Canada

Common examples of specified foreign property include shares of US corporations (e.g., Microsoft or Berkshire Hathaway) and US-based ETFs and funds (e.g., SPY or VTI).

Canadian ETFs and mutual funds holding foreign property are not considered specified foreign property.  Foreign property held in an RRSP or TFSA (or another registered account) or personal use property such as a vacation home are also not considered to be specified foreign property.

The penalties for failing to file Form T1135 can be steep, starting at $25 per day and escalating up to thousands of dollars.

Investors with specified foreign property with a maximum cost greater than CAD$100,000 but below CAD$250,000 have the option of using either the simplified reporting method (Part A) or the detailed reporting method (Part B).  Investors with specified foreign property with a maximum cost greater than or equal to CAD$250,000 are required to complete the detailed reporting method (Part B).

Part A – Simplified Reporting Method

The simplified reporting method requires only the following details to be provided:

• The types of specified foreign property held during the tax year
• The country codes of the top three countries based on maximum cost
• Gross income from all specified foreign property
• Capital gains (losses) for dispositions of specified foreign property

No details on individual properties need to be provided.

Part B – Detailed Reporting Method

The detailed reporting method generally requires separate reporting for each property.  The specific data points required depend on the type of property.  A few of the common examples are detailed below.

Category 1: Funds held outside Canada

• Country code
• Maximum funds held during the year
• Funds held at year-end
• Gross income

Please note that foreign currency held in a Canadian financial institution does not need to be included for T1135 reporting purposes.

Category 2: Shares of non-resident corporations:

• Country code
• Maximum cost amount during the year
• Cost amount at year-end
• Gross income
• Gain (loss on disposition)

Category 7: Property held in an account with a Canadian registered securities dealer or a Canadian trust company:

• Country code
• Maximum fair market value during the year
• Fair market at year-end
• Gross income
• Gain (loss) on disposition

Property held at a Canadian registered securities dealer (e.g., a Canadian brokerage) can either be reported in aggregate in Category 7, or individually in the other categories.  If reporting property in Category 7, it should be reported in aggregate on a per-country and per-security dealer basis.  This method requires reporting of maximum fair market value (rather than maximum ACB) during the year and can be based on the maximum month-end fair market value.

Form T1135 Assistant on AdjustedCostBase.ca

This feature is only available to AdjustedCostBase.ca Premium subscribers.  The cost of the enhanced service is $49/year.  The basic features of AdjustedCostBase.ca remain completely free for Canadian investors.

AdjustedCostBase.ca provides a tool to help with determining your reporting requirements for Form T1135.  The tool also generates much of the required data for completing the form.  Accurately computing the maximum ACB of your specified foreign property throughout a tax year can be a headache, particularly if you own many foreign properties that were bought and sold throughout the year.  Our tool can help to greatly simplify this process.

In order to use this tool effectively, you’ll need to ensure you’ve marked your applicable securities as “Specified Foreign Property.”

Correctly marking securities as “Specified Foreign Property” is essential for ensuring the accurate calculation of your maximum total ACB throughout the tax year.  If you’ve already added securities corresponding to specified foreign property then you can edit these securities in order to set this flag.

The Form T1135 Assistant can be accessed via the “Tools” menu.

In addition to specifying the tax year end date, you can optionally enable the option to “Calculate Maximum ACB Using Month-End Values.”  With this option, the maximum ACB values (the aggregate total as well as per-security totals) are calculated based on month-end values, rather than using the maximum day-end values.  In some instances the enablement of this rule can drastically impact the calculated maximum ACB.  The CRA permits either method to be used.

The generated report instantly provides you with the maximum total cost for a given tax year, and indicates your T1135 filing requirements (whether or not you’re required to complete Form T1135, and if so, whether Part B is required).  The reported filing requirement is based solely on the transactions you’ve inputted into AdjustedCostBase.ca.  If you own specified foreign property that hasn’t been inputted into AdjustedCostBase.ca, and it places you above either the $100,000 or $250,000 threshold, your filing requirement will be different that what is indicated in the report.

The total capital gain or loss on specified foreign property is also provided (useful for completed Part A).

The report also includes a breakdown of each specified foreign property owned throughout the year.  The maximum ACB (calculated based on the maximum month-end value if the “Calculate Maximum ACB Using Month-End Values” option is enabled), the year-end ACB, total capital gain/loss, maximum shares and share balance at year end are also provided on a per-security basis.  This information is useful for completing the details for individual specifing foreign properties, if you are required to complete Part B.  If you choose to aggregate foreign property held at a Canadian securities dealer in Category 7, you’ll need to separately determine the aggregate fair market values on a per-country basis.

Here is how the information from the above example would be transferred into Form T1135 in Categories 2 and 4, if completing Part B:

Note that the information related to income is not provided by the Form T1135 Assistant report (this information cannot be derived from data inputted into AdjustedCostBase.ca).  You should rely on your brokerage statements to obtain this information.

Since the definition for specified foreign property includes the right to acquire property, the cost of call options purchased to open are included when computing the maximum total ACB and the maximum ACB for particular securities.  The capital gains or losses for a security includes gains or losses from options transactions, if applicable.