Late Filing of T1135: What You Need to Know

Barbara Britto

The T1135 form, officially titled Foreign Income Verification Statement, is a crucial document for Canadian taxpayers who own, or hold specified foreign property with a total cost of more than CAD 100,000 at any time during the year. Its primary purpose is to allow the Canada Revenue Agency (CRA) to track offshore assets and ensure that Canadians are properly reporting foreign income. However, many taxpayers overlook or delay this filing, which can lead to significant penalties and consequences. This article explains the implications of late filing  the T1135, including who needs to file, deadlines, penalties, and options for voluntary disclosure.

Who Must File the T1135? Canadian residents, including individuals, corporations, trusts, and certain partnerships, must file a T1135 form if they own specified foreign property costing more than CAD 100,000 at any point during the year. “Specified foreign property” includes:

• Funds held in foreign bank accounts
• Shares in foreign corporations (including those held in Canadian brokerage accounts)
• Interests in foreign trusts
• Real estate located outside Canada (excluding personal-use property like a vacation home)
• Debt owed by foreign entities
• Other foreign investments and interests
• Precious metals, gold certificates  and futures held outside Canada
• Interests in mutual funds that are organized in a foreign jurisdiction
• Patents, copyrights or trademarks held outside Canada

If the above criteria are met, filing the T1135 form is mandatory even if the foreign holdings did not generate any income during the year.

Filing Deadlines: The T1135 must be filed on or before the due date of the taxpayer's income tax return. For individuals, that generally means April 30 of the following year (or June 15 if self-employed, though any tax owing is still due by April 30). For corporations and trusts, the filing deadline aligns with their respective income tax return deadlines.

Unlike the T1 tax return, the T1135 is not automatically included in most tax filing software or returns—The form is filed separately with the CRA, electronically or by paper.

Penalties for Late Filing

Failing to file the T1135 on time, even if unintentional, can lead to substantial penalties. The standard penalty for late filing is: $25 per day, up to a maximum of $2,500 .However, penalties can increase significantly under certain conditions: If the failure to file is deemed to be gross negligence or if the taxpayer failed to comply to a demand to file the form, the CRA can impose penalties ranging from $500 to $1000 a month, up to a maximum of $12,000 and $24,000 respectively. There is an additional penalty after 24 months of 5% of either the cost of the foreign property, the fair market value of the property transferred or loaned to the trust, or the cost of the shares and indebtedness of the foreign affiliate.

A True-to-life Example. To cite an example a young taxpayer missed reporting some trade transactions and provided incorrect information to the tax practitioner. The return was reassessed, and an amendment was filed with the T1135 which was missed initially. The taxpayer was actively trading US shares and the amounts were above CAD $100,000 for a month or two. There was no tax liability for filing the form late, but the taxpayer was fined $2500 and interest in arrears.  

The taxpayer submitted the RC4288 form (Request for Taxpayer Relief), but the request was denied. Another appeal has been submitted based on financial hardship which is in process.   The above case is an illustration of a taxpayer who made an unintentional error and rectified the error to ensure compliance with CRA regulations. The CRA however levied the penalties and other charges which the taxpayer is claiming for some relief. 

Voluntary Disclosures Program (VDP). If the taxpayer missed filing the T1135 in prior years, the CRA’s Voluntary Disclosures Program (VDP) may provide relief. This program allows taxpayers to correct past mistakes without facing full penalties or prosecution, if the disclosure is:

• Voluntary (before CRA contacts you about it),
• Complete,
• At least one year past due, and
• Specific to penalty relief.

If accepted, the CRA may waive or reduce penalties and interest. However, the VDP is not available if the CRA has already initiated enforcement actions or audits related to the foreign assets.

Bottom Line. The T1135 is more than just a form—it's a key component of Canada's efforts to ensure tax compliance and transparency regarding offshore assets. Failing to file it on time can result in severe financial and legal consequences, even if there is no tax liability. If a taxpayer has not filed prior T1135 returns, consider the Voluntary Disclosures Program to mitigate penalties. And always consult a qualified tax professional to ensure compliance with CRA regulations.