Undisclosed Foreign Assets and Income
If you have undeclared foreign income, you can count on the CRA discovering it and charging tax and penalties on this income. Farber Tax Solutions can help. Here is what you should do if you own overseas assets.
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CRA Foreign Property Rules
In recent years, the Canada Revenue Agency (CRA) has begun cracking down on people who have undeclared foreign income or foreign property. The CRA does not directly tax tax foreign property, but if you owned property outside of Canada at any point during the year, you need to report this asset to the CRA (if the total cost of the asset is greater than $100,000). This requirement does not just apply to real estate. It also refers to bank accounts, stocks, bonds, or other tangible property. You must declare to the CRA foreign property that you purchased as well as assets that you inherited.
This reporting can be done by completing Form T1135. This form is not a tax return. It is an information statement that the CRA can use to check that you have been reporting income from foreign sources on your income taxes.
Foreign Income Tax Canada
In addition to reporting to CRA foreign property that you own, you must also declare any money that you earned from outside of Canada. If you are a Canadian resident, you must declare all income that you earned outside of Canada on your income tax return. You will be taxed on this income. Under the Form T1135 first-year resident exemption, an individual Canadian immigrant does not have to file the return for the year they first moved and became a resident of Canada.
You must declare the country the funds came from, and how much you earned before any foreign taxes were withheld. Canada has treaties with several foreign countries that are designed to prevent you from being taxed twice on your income. This is called a foreign income tax credit. You must disclose your foreign income properly to benefit from this credit.
Failing to Disclose CRA Foreign Income and CRA Foreign Property
When it comes to foreign income tax Canada, it’s important to make sure you declare what the CRA requires. If you do not properly disclose income and property from overseas, the CRA could consider this to be tax evasion. This is a very serious charge that could result in large penalties and fines and even potential prison time. As mentioned, in recent years, the CRA has been cracking down on these cases. Modern technology and various agreements between nations have made it easier than before for the CRA to find offshore assets.
If you have not properly disclosed foreign income and assets, the Voluntary Disclosure Program may be an option for you. This program allows you to correct errors on prior tax returns and potentially avoid penalties and criminal prosecution. However, this disclosure must be voluntary, meaning that you need to come forward before the CRA contacts you regarding your income taxes. This represents a potential risk as you will be giving the CRA information about your tax situation that it does not currently have.
For this reason, it’s critical to work with an experienced tax professional in these situations. The professionals at Farber Tax Solutions have extensive experience in working with and negotiating with the CRA. We understand the agency’s processes and know how to navigate their often complex methods. If you have foreign income tax Canada, you are concerned about how the agency will tax foreign property, or if you are dealing with any other tax issues, please do not hesitate to contact us today.
Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:
- 1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;
- 2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and
- 3| Offer a complete solution to your tax problems, including ex-CRA professionals and tax lawyers from Farber Tax Law.