Offshore reporting day looms
As the battle between the Canada revenue Agency and the CBC to obtain the list of the other 449 Canadians who have offshore bank accounts appears to be headed to the courtroom, we should keep in mind the fast-approaching April 30 tax return filing deadline is also the deadline to mail in your Form T1135 to report any foreign investments or face the newly heightened ire of the tax man. If you or your spouse or partner is self-employed, the deadline is extended to June 17.
Form T1135 is the "Foreign Income Verification Statement" which must be filed annually, by mail, if the total cost of all your foreign investments was over $100,000 at any time during the year. Foreign property includes: foreign bank accounts, foreign real estate other than personal-use real estate such as a vacation property that isn't rented out, and foreign securities held in both foreign and Canadian non-registered brokerage accounts.
The penalty for failing to file this form by the April 30 deadline is $25 per day, to amaximum of $2,500. If you knowingly or under circumstances amounting to "gross negligence" fail to file the form, the penalty jumps to $500 for each month the form is not filed, to a maximum of 24 months.
While historically, the CrA used to waive these harsh penalties for innocent first-time failures to file, over the past number of years the CRA has shown no mercy and has been assessing penalties even on first-time occurrences.
If you're late and are hit by the penalty you can explain your situation to the CrA and apply, under what's known as the "fairness rules," to have the penalties and any arrears interest cancelled. If the CRA refuses, you can take your case to Federal Court and seek a judicial review of the CrA's decision to deny your request for relief. If you are successful, the judge will send the matter back to the CRA for reconsideration.
Alternatively, as one tax taxpayer successfully did last year when hit with a $2,500 late-filing penalty, you can skip the CRA fairness stage altogether and go directly to Tax Court. This must be made filing a formal Notice of Objection by the deadline, which is one year from your filing due date or 90 days after the date printed on the Notice of Assessment, whichever is later.
In that case, the taxpayer took his time filing his income tax return since he owed no tax and therefore believed that there would be no penalty for late-filing since such penalties are levied based on a percentage of any balance of tax owing.
The judge was sympathetic and cancelled the penalty since it would be "unfair to penalize [him] for failure to comply with a filing deadline in these circumstances.... Although the penalty [for late-filing the T1135] is strict...this Court has held that even strict penalties should not be applied if a taxpayer has taken all reasonable measures to comply with the legislation."
If you missed filing prior years' T1135s, you should submit them under the CRA's Voluntary disclosure system.