jimf

This does seem to be a clear admission from CRA that the present system is not clear:

Q5. What changes are being made to improve the filing process for Form T1135?
A.5 For taxpayers who have ticked the “Yes” box on their tax returns indicating they have specified foreign property in a taxation year with a total cost of more than $100,000, a reminder will be included on their Notices of Assessment of the obligation to file Form T1135. These reminders will start with the 2013 taxation year. As well, electronic filing for Form T1135 is being developed and the CRA will announce when electronic filing will become available.

http://www.cra-arc.gc.ca/gncy/bdgt/2013/txvsn3-eng.html

JonboyE

I agree that it is not clear. You could use the case you referred to from the Tax Court. However, there is a significant difference between that case and yours. In the Douglas case the taxpayer won because he had followed the instructions on the T1135 - i.e. he filed a properly completed T1135 with his tax return. From what you said you did not file a properly completed T1135 with your tax return.

Still, there is nothing to loose by trying this argument.

jimf

The cases are different but with $5k at stake it's worth pursuing.

The more I look at it the more the whole T1135 system seems very poorly set up. I notice that the penalty warning on the T1135 form is actually tucked away in the small print on page 4. The word substantial is used but it doesn't explain the nature of the increase of the penalty or the maximum and makes no reference to the income tax act 162(7)(a) - the clause referred to in the penalty notice.

At what stage do they send in the bailiffs????????????

JonboyE

This is a good resource.

http://www.taxpayersadvocate.ca/wiki...n_Objection.3F

jimf

Thanks for that - looks like a good reference. Today is the day for finalising the 2012 return and not giving CRA the chance for a repeat.

Steve_

They're not psychic, it's your obligation at the end of the day to comply with the law.

I did actually file a complaint a year or two ago that mentioned the box on the T1 General about the T1135, because it's not on the T1 Special that they generally mail out. I have a big problem with the T1 Special because they just assume you can use it, even when you've checked boxes that only appear on the T1 General. There isn't even a mailing list for the T1 General, only the T1 Special. There seems no point to the T1 Special to me, especially in Alberta because of the flat tax, so the forms are already simple to begin with.

But they've been on the war path about the T1135 for a couple of years now, mainly going after investment companies.

All I can say is if you think T1135 is tricky, try doing T1134.

Souvy

I got done on that a couple of years ago. It was a paper filing, prepared by an accountant. I heard nothing until the fall. The form was there but no box had been checked. Thus, I had not filed. To make matters worse, there had been a balance due. I got penalised big time and the Revenue would not take any excuses.

The accountant did my next return for free and we are both very careful about that form.

JAJ

If the T1135 is never filed, what's the consequence? Is the penalty worse than the C$2,500 that CRA appear to be imposing automatically.

If the form is never filed, is there a statute of limitations after which CRA cannot issue the penalty or take other action?

A penalty of C$2,500 for omission of an information return - assuming tax was declared and paid correctly - seems greatly excessive. Does Canada have constitutional protection against excessive penalties?

JonboyE

$2,500 is the maximum penalty allowed by the Income Tax Act. If you are more than 100 days late when you realize that you should have filed the T1135 then just not filing at all seems a reasonable option. They can charge interest on the penalty if they realize you should have filed the return, but this is currently at 5% pa. If the CRA have reason to believe that the form was not filed to facilitate fraud there are other penalties they can apply.

Generally, returns are statue barred three years after the CRA issue a Notice of Assessment or Reassessment. Unless the CRA can demonstrate fraud or gross negligence.

It is $25 a day up to $2,500. It is in Statute Law so I think the only way to challenge it is on the basis of the Charter of Rights and Freedoms. I am not aware that anyone has successfully challenged it, other than on the basis of misleading instructions in the notes to the form (the Douglas case mentioned above).

The $25 a day up to $2,500 applies to many information returns. There are relief provisions in many circumstances where the failure to file is inconsequential. However, Canadian tax authorities are keenly aware that there is a lot of Canadian wealth abroad. With the immigrant population and free flow of capital in and out of the country it is easy to believe there is a lot of foreign income that is not reported and taxed in Canada.

I think the $100,000 starting point for reporting foreign assets comes from a time when $100,000 was a lot of money. And, unfortunately, being seen a soft on tax cheats does nothing for a politician so I see no immediate prospect of the limit being changed or the penalty moderated.

Steve_

I thought it was longer than that? Is T1135 considered to be part of a notice of assessment?

This article seems to be saying it is at least five years: http://www.advisor.ca/news/industry-...-be-costly-494

Steve_

Anyway I got a notice of assessment today which contained a rather odd letter saying they hadn't accepted my AB428 as submitted but had nonetheless agreed to my tax refund claim.

When I phoned them, they said that their software couldn't process a paper return that included cents on lines 5868 through lines 5876 (or something along those lines, I couldn't follow all the BS they were throwing at me) so they'd had to round off that figure and then basically ignore it later on.

Great. So even the CRA fiddle taxes. Why did they even bother to tell me? I wouldn't have known otherwise. I suppose because the figures on the notice don't add up exactly.

JonboyE

Looking at this further I was wrong. There is an additional penalty of 5% of the cost of the property the CRA can impose if an infomration return is more than 24 months late.

jimf

Are any of these penalties stated on the T1135 form/instuctions?

JonboyE

That is the general rule. The CRA can go back further if they have reason to suspect fraud or gross negligence.

A good question. I can't find a definite answer at the moment.

JonboyE

No. It does say there are substantial penalties for failing to complete and file the return by the due date. The details of the penalties are here: http://www.cra-arc.gc.ca/tx/nnrsdnts...pnlts-eng.html