The federal government in its 2015 budget brought down on Tuesday is proposing to introduce a new simplified annual foreign property reporting regime, representing a measure of compliance relief for individuals with specified foreign property having a cost over $100,000 but below $250,000 at any time in a year.
“It’s fantastic [news] and very much needed,” says Debbie Pearl-Weinberg, executive director of tax and estate planning in CIBC’s wealth advisory services unit. She suggests that the new regime could reduce the compliance burden on investors who own relatively modest amounts of foreign property.
However, the current reporting requirements, which require taxpayers to provide more detailed information regarding each specified foreign property, will continue to apply to taxpayers with specified foreign property that has a total cost at any time during the year of $250,000 or more.
Currently, a Canadian-resident individual, corporation or trust that, at any time in a taxation year, owns specified foreign property with a total cost of more than $100,000 must file a foreign income verification statement (Form T1135) with the Canada Revenue Agency. Specified foreign property generally includes funds and investments held outside of Canada, but excludes, among other things, property used exclusively for personal use, such as a vacation home. Property held in registered plans, such as Registered Retirement Savings Plans and Tax-Free Savings Accounts, are excluded from the Form T1135 reporting requirements.
Financial industry insiders and tax experts have been arguing to the government that the T1135 reporting regime represents an onerous compliance burden for taxpayers.
“The form remains very complex for the average investor,” says Pearl-Weinberg, who says that many individuals are left with greatly increased tax-return preparation process costs in order to comply properly with the T1135.
For its part, the government argues that the reporting associated with the T1135 regime helps it in its commitment to combatting international tax evasion and aggressive tax avoidance.
The revised form for taxpayers with less than $250,000 in foreign property is currently being developed by the Canada Revenue Agency. It will apply to tax years after 2014.