As the world has become more interwoven, individuals have easier access to invest, work, and otherwise earn income from other countries. 

Canadian taxpayers are required to declare and pay taxes on their global earnings, but historically, many have not.

As a result, CRA requires significant foreign assets to be reported.

Does This Affect Me?

Really, this is the most important question.

Having a small amount invested outside Canada does not require additional reporting and if you have significant assets, there are some exceptions. You need to report any income on those investments when you file your taxes, whether they would be considered significant or not.

If you own TOTAL assets in a foreign jurisdiction that reach the equivalent of $100,000 at ANY time during the tax year, you need to report them on T1135. Not sure what this is? Read on!

If you own or have a beneficial interest in a foreign corporation or trust, you may have to file a T1134 and some supplementary information. We won’t talk about this in this article as it doesn’t affect many of our clients.

We suggest, of course, that if you have any questions about either of these, that you speak to your accountant about whether or not you need to file them.

Work with your Financial Planner

There are A LOT of Financial Planners or Financial Advisers out there who are nothing more than glorified salespeople. They repeat what they are told by their superiors to sell products, make their quotas, and get their bonuses.

They work in their own best interest, not yours. They have a limited understanding of tax implications if they even think about them at all. Taking tax advice from one of these types of financial planners is a bad idea.

However, there are some wonderful, knowledgeable and well-versed Financial Professionals out there who DO understand enough about our tax system to know where their knowledge ends and when you should speak with an accountant. (If you don’t have one of these and are looking for one, we have a Referral List that we keep of various professionals we have vetted who we feel will do a good job for our clients).

If you’re not sure about the quality of your Financial Planner/Adviser/Advisor, ask them some questions about the material below and see what kind of answer you get. If you don’t have confidence in their responses, get clarification or consider making a move.

How to Get in Trouble

One very common situation we’ve seen is investors accruing assets in the US, sometimes without realizing it. 

This can even happen without their knowledge if they are using a discretionary advisor, one who can buy and sell of their own accord without their approval, but who acts in your best interest.

In these situations, it’s vital to ask about your foreign holdings.

Foreign Asset Reporting

In recent years, financial institutions have become better at providing the information required to report foreign holdings to the CRA. Many institutions will provide a document outlining the foreign holding labeled with the form affected. 

For instance, a T1135 report. However, if you work with multiple different institutions, they won’t know about your entire situation.

Understanding and managing your financial situation is your responsibility. Financial professionals, accountants, and lawyers can help, but can’t do it for you.

T1135, Foreign Income Verification Statement

If, at any time during the tax year, you held foreign assets with a total value above $100,000 Canadian, this needs to be reported on form T1135. Keep in mind that this is the total value.

If you have assets in multiple jurisdictions, you may need to do some analysis to figure out if this reporting is required or not.

Sometimes, your assets can go over $100,000 by accident. For instance, perhaps you purchased some stocks worth $80,000 a couple of years ago, and in May of 2023, they temporarily crossed the $100,000 threshold, but by the end of the year they were back to $90,000, you’ll need to report it on a T1135.

In another example, if you have cash holdings of $25,000 USD and stocks worth $50,000 USD, and the exchange rate causes the combined value of these assets to go over $100,000 CAD, you’ll need to report this on a T1135.

If you’re working with a financial professional, now is the time to ask them about your foreign holdings. They should be able to provide you with a report to make things easy.

Keep in mind that you may need to review ALL your holdings to understand what the total value of the assets were throughout the year.

Exceptions

The following do not have to be reported on T1135:

• Funds invested in a registered account such as an RRSP or TFSA (and we assume the new FHSA)
• Funds invested in a Canadian mutual fund that invests in foreign jurisdictions
• Vacation properties that are used ONLY for personal use
• Vacation properties that are used personally for part of the year and rented out for part of the year with no expectation of profit

Although there are others, these are the primary ones that would be of most interest to the majority of taxpayers.

Penalties

The basic penalty for failing to file a T1135 is $2,500 per year. In cases of gross negligence where you were aware of the requirement but failed to comply, this amount may escalate to $12,000 per year. If the CRA is demanding you file a T1135 and you don’t, it could be as high as $24,000 per year.

If that isn’t motivation to understand your situation, I don’t know what is!

Tax Treaties

Having assets in foreign jurisdictions does not automatically mean you’ll pay double the tax. Many countries have tax treaties with Canada that will allow tax paid or withheld in the foreign jurisdiction to be taken as a credit against the taxes owed in Canada. 

Be sure to get a good understanding of this or work with an accountant to make sure you’re taking foreign tax credits appropriately.

(Note, Foreign Tax Credits often get reviewed by CRA.)