yzf.shaun

$2500! Best make sure I remember to file this next year. Had me worried that I didn't file this year. Had to read it again to confirm you don't need to file for your first year.

jimf

Hiding away references to penalties in a vague way in the small print at the back of a document would normally be considered appropriate for pay day loan type companies.

Mrs jimf's (correctly) declared income for 2011 is approx $4k. The penalty represents approx 65% of the annual declared income therefore.

I've spoken to CRA a couple of times on this now. The person I spoke to at length was somewhat embarassed almost about the penalties - he went off to speak to a supervisor for 15 mins or so and when he came back wanted to know if the words "voluntarily disclosed" were used in my letter. It looks like it will be prudent to include the phrase "For the avoidance of any doubt the information in this letter is voluntarily disclosed............." in any letter to the CRA in future.

jimf

Initial CRA response was that they intended to reject the objection but after asking if they would discuss it and politely stating the case to them CRA said they would reconsider and a couple of days later advised they would allow the objection in full. T1135 is dealt with very carefully now!

JonboyE

That's great news. I only succeed in getting the CRA to reverse penalties when there are extreme circumstances - hospitalization or a death in the family etc.

Everyone should note that the T1135 has been reissued for 2013 and later years. The reporting requirements have been enhanced. It is not that different if your only foreign asset is a rental property in the UK, but anyone who has foreign bank accounts, or a brokerage account outside Canada, or a brokerage account in Canada that buys and sells foreign securities will need to send the CRA a detailed list. Some of my clients will be sending a book with their T1135.

We are waiting to see how this will work in practice. Hopefully, if the International Tax Services office gets swamped with hundreds of thousands of binders full of small trasactions they might need to think seriously about raising the limit.

orly

Care to clarify? My emphasis.

JonboyE

If your aggregate foreign assets had a cost of more than $100,000 at any time in the year then you have to list all your foreign bank accounts (and similar) on the T1135 including the highest amount during the year and the amount at the end of the year.

1. Funds held outside Canada
Funds held outside Canada include money on deposit in foreign bank
accounts, money held with a foreign depository for safekeeping and money
held by any other foreign institution at any time during the year. Prepaid debit
or credit cards and negotiable instruments, such as cheques and drafts, are
also included in this category

Steve_

And they didn't add the bit I asked them to, i.e. that RRSPs etc. are exempt from being listed on the form because they are held in trust by the financial institution. Totally not obvious from the form that they are exempt. Says they're exempt if you get a T3 or a T5 but doesn't mention RRSPs.

jimf

It's a relief not to have the $5k penalty hanging over us. Every point she made I simply admited that I had made the error and attempted to put it right paid all the tax due and noted that no reasonable person would consider a $5k fine reasonable or appropriate.

Do I need to declare my UK current account also - used for transactions for the renting - I probably get about 1GBP interest on it each year. There's also an old savings account with 14p in it I think! Pension plans don't need to be declared I take it?

Steve_

Depends on the plan, but I am reliably informed that Canadian plans such as an RRSP (i.e. things you get a slip for) don't, even though they're not mentioned on the form.

Assuming the CRA are right of course, you know how good they are at that, but the guy I spoke to did some checking and called me back. So...

JonboyE

My understanding of the new rules is yes.

Pension plans should be exempt trusts within the meaning of the Income tax Act so do not need to be reported. The exact wording is in section 233.2(1):

“exempt trust” means

(a) a trust that is governed by a foreign retirement arrangement;

(b) a trust that
(i) is resident in a country under the laws of which an income tax is imposed,
(ii) is exempt under the laws referred to in subparagraph (i) from the payment of income tax to the government of that country,
(iii) is established principally in connection with, or the principal purpose of which is to administer or provide benefits under, one or more superannuation, pension or retirement funds or plans or any funds or plans established to provide employee benefits, and
(iv) is either
(A) maintained primarily for the benefit of non-resident individuals, or
(B) governed by an employees profit sharing plan; or

I think paragraph (b) and especially (iv)(A) covers this.

Steve_

This form is so badly designed, the guy I spoke to said they've been getting loads of calls about it.

Nowhere on the form does it mention that pensions held in trust are exempt from reporting and you would think it would be the #1 thing people hold money in abroad over $100,000.

Moreover question 4 and the instructions mention you must report non-resident trusts - but trusts held by Canadian financial institutions, say an RRSP with foreign assets in it are exempt. And so are many foreign pensions, which are non-resident trusts, but exempt.

JonboyE

I agree. It has a lot of us concerned (not to mention our E&O insurers) because we see so many new ways the form could be deemed to be completed incorrectly - and therefore penalties issued.