Category Archives: Offshore investments

CANADIAN T1135 REPORTING FOR PART YEAR RESIDENTS

As a general rule, Canadian residents need to file form T1135 with the CRA for any year in which the total “cost amount” of “specified foreign property” exceeds $100,000 at any time in that year[1].

Depending on the circumstances, this form requires various levels of information to be reported with respect to transactions in connection with such properties during the relevant year.

But what about a situation in which the taxpayer is not resident in Canada for the entire year? Does the CRA reporting have to include transactions (sales, purchases) for the part of the year that the taxpayer is not resident in Canada?

In this regard, a literal reading of the Act and the form would suggest that the answer is “yes”. The taxation year of a natural person is always the calendar year. There is no deemed year-end on emigration or immigration, although the income earned in the nonresident portion of the year is generally not taxable in Canada[2].

Given that, it is comforting and refreshing to see the CRA taking a very common sense administrative position in a Technical Interpretation regarding an emigrating taxpayer (CRA Document 2014-052937). Based on that interpretation, transactions after emigration need not be reported, and the closing balance of the taxpayer’s investments should be treated as “NIL”.

But what about the reverse situation: a taxpayer becomes a Canadian resident during the year. In most cases, the issue is moot because of the general exemption from T1135 reporting for the first year of residency[3]. However, the issue is still relevant for a returning Canadian expat, since the exemption would not apply in that case.

One would think that the CRA would adopt an analogous position in such cases, and allow transactions prior to immigration to be excluded. However, curiously, in CRA document 2015-0611141E5, the CRA seems to take a position that is based on a literal reading of the Act. They require reporting in such circumstances for the entire calendar year.

[1] Section 233.3 of the Income Tax Act (“the Act”)

[2] As per section 114 of the Act, assuming not “taxable income earned in Canada”

[3] Section 233.7

HOW CANADIAN COMPANIES CAN USE EXEMPT SURPLUS TO REDUCE TAXABLE GAINS ON SALE OF FOREIGN SUBSIDIARIES

Envision the following situation: Canco, a private corporate based in Ontario, has just gotten an offer to buy its wholly-owned U.S. subsidiary (“Usco”) for $10 million US. This is far more that the management of Canco thought it was really worth, so they jump at the offer. They ask Joe Numbers, their VP Finance to… Continue Reading

CANADA’S OFFSHORE TAX INFORMANT PROGRAM-THE CRA PROVIDES SOME UNIMPRESSIVE STATISTICS ON RESULTS

On January 15, 2014, the CRA launched the Offshore Tax Informant Program (OTIP). As described on CRA’s website, this program “offers financial rewards to individuals with specific and credible information about major cases of international tax non-compliance resulting in more than $100,000 of additional federal tax being assessed and collected.” In that connection, Question 14… Continue Reading

CRA CONFIRMS THAT PENALTIES FOR FAILURE TO FILE FOREIGN PROPERTY INFORMATION FORM CAN BE STATUTE BARRED

Under subsection 233.3(3) of the Income Tax Act (“the Act”), Canadian residents are generally required to file form T1135 for any year in which they have “specified foreign property” with a total cost base of more than $100,000 at any time in the year. This form is generally due at the same time that the taxpayer’s normal… Continue Reading

CANADIAN FOREIGN TAX CREDITS AND TAX TREATIES-MYTH VS. REALITY

CANADIAN FOREIGN TAX CREDITS AND TAX TREATIES-MYTH VS. REALITY Ever since I can remember, I have heard people reiterate what appears to be a common misconception regarding the ability of Canadians to claim a credit, for foreign taxes that they pay, against their Canadian tax liability. This myth seems to be widespread among accountants who… Continue Reading

FOREIGN ASSETS THAT DON’T REQUIRE T1135 REPORTING

In recent years, Canadian taxpayers and their accountants have been increasingly aware of issues relating to CRA form T1135, which is generally required where taxpayers hold “specified foreign property” (“SFP”) with a total cost base of more than $100,000 at any time in a year. This form and the related requirements have been the subject… Continue Reading

CANADIAN TAX IMPLICATIONS OF INVESTMENT IN OFFSHORE MUTUAL FUNDS  

  Many Canadian residents invest in mutual funds established outside of Canada. Often, the motivation for such investments has nothing to do with tax issues. Rather, in many cases, such funds offer better yields or more attractive asset mixes than domestic funds. In certain cases, such funds may not be directly distributed to Canadian residents,… Continue Reading