December 11, 2019
Whether you are born in Canada or have recently moved here, you must report the foreign assets they own. If you have undeclared foreign income, the CRA will discover it and charge you tax and penalties. Farber Tax Solutions can help.
Disclosure of Foreign Assets in Income Tax Return Filing
Canadians – whether they are born in this country, have recently moved here, or anything in between – must report the foreign assets they own. However, this only applies to assets with a value in excess of $100,000 in Canadian dollars. Though the Canada Revenue Agency (CRA) tends to use the phrase “foreign property” to refer to these assets, this does not only include real estate holdings. It also refers to the reporting of foreign bank accounts, stocks, bonds, shares of corporations, precious metals, and many other foreign assets.
The disclosure of foreign assets in income tax return filings is critical. If you do not properly disclose your foreign assets, you could be hit with a penalty. The CRA may also consider failures in reporting of foreign bank accounts and assets to be tax evasion. This is a very serious charge and one that you certainly do not want to be accused.
It is important to note that the disclosure of foreign assets in income tax return documents does not relate to investments that are held inside Registered Retirement Savings Plans (RRSPs) or Tax-Free Savings Accounts (TFSAs). You do not need to list the specifics of these investments on your tax returns as foreign property.
You may also exclude assets that you hold primarily for personal use as well as property that is used for running a business. Stock that is traded on foreign stock exchanges is also not necessarily considered foreign assets and thus you may not need to count these assets as part of the $100,000.
Penalties for Failure in Reporting of Foreign Bank Accounts and Assets
As mentioned, the CRA can charge a penalty if you fail to complete the required form (form T1135) that lists your foreign assets. For individuals, corporations, and trusts, this declaration form is due on the same date as your income tax return. The penalty for failing to file this form on time is $25 per day for up to 100 days.
However, in situations where the CRA considers the lack of disclosure of foreign assets in income tax filings to be done knowingly or due to gross negligence, the penalty can be raised to $500 per month for up to 24 months (maximum $12,000), less any penalties already levied. The CRA can also choose to issue a demand to file a return to a person or partnership, which comes with much more severe penalties.
If the CRA determines that you knowingly or under circumstances amounting to gross negligence made false statements or omissions in your information returns (including in your reporting of foreign bank accounts), the penalties can be even more significant.
Dealing with Issues and Penalties Relating to Reporting of Foreign Bank Accounts
As seen above, the penalties for failing to disclosure foreign assets or making false statements or omissions while doing so are very severe. Speaking with the professionals at Farber Tax Solutions can help. Our team has the experience and skill necessary to communicate and negotiate with the CRA and resolve your tax disputes. There are options available to those who have not accurately disclosed their foreign assets, but these must be handled carefully. The penalties for making an error can be serious and the consequences of navigating these complex processes incorrectly can be severe.
At Farber Tax Solutions, our team is made up of ex-CRA and legal professionals. We know how to communicate with the CRA, properly disclose information without taking on additional risk, and resolve tax problems. For more information, please contact us today