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Home TAX TIPS Our Tips Reporting Foreign Properties on Your Tax Return

Reporting Foreign Properties on Your Tax Return

If you carefully review your tax documents, on the very first page of the tax return form there is a question: “did you own or hold foreign property at any time in the year with a total cost of more than $100,000 CAD? “ If you hastily answer “NO”, think twice, especially starting in 2014 tax year.

CRA begins to place an increased emphasis on foreign reporting, primarily to target international tax evasion and aggressive tax avoidance, but at the same time affecting all taxpayers, even with moderate portfolios and less significant assets. Here is a brief look at who is affected and what needs to be reported.

Who needs to report foreign property?

Individuals, corporations, some trusts and partnerships who own total of $100,000 or more of foreign assets at any time in a year, valued at cost.

 

Property to be reported:

•Funds held outside of Canada

•Shares of non-resident corporations

•Non-Canadian property held in account with Canadian registered security dealer or Canadian trust company, other than mutual funds

•Interests and rights with respect to a non-resident entity, including trusts

•Interests in a foreign insurance policy

•Precious metals, gold certificates, and futures contracts held outside Canada

•Debts owed by a non-resident

•Real estate, other than discussed below in the exemption section

It is very important to note that before 2014 you did not have to include investments that were held within Canadian investment companies (security dealers) for which you received T5 or T3 slip. Now, this exemption is lifted.

Property excluded from foreign reporting:

The major exclusion is the real estate held exclusively for personal use, such as vacation property. However, if the property is rented for more than 50% of the year, it is no longer considered personal use only. Another significant exception to the reporting rule is property held within RRSP and TFSA, and through Canadian mutual funds. Also, foreign property used in active business is excluded, as well as foreign registered retirement plans.

How to report:

If you find yourself to be the one with enough foreign assets to attract CRA’s attention, you need to brace yourself for rather complex reporting rules. Your holdings will need to be reported on a country by country basis, and you will need to check for their highest monthly closing value throughout the year. In addition, income and gains (losses) realized from all dispositions during the tax year will also have to be disclosed.

Your foreign property needs to be reported on a special form called Foreign Income Verification Statement. It needs to be filed according to your tax filing deadline. For example, if you have employment or investment income only, your filing deadline is April 30. If you are self-employed, your deadline is June15.

These changes in foreign reporting have major implications for those who have portfolios that include non-Canadian content. You have to carefully review your foreign assets to see if you do not exceed the 100K mark. If you do, you should talk to you investment advisor and accountant about what it means for your reporting requirements. No doubt, this really makes the tax filing deadline even more challenging!