Foreign investment filing case heads to court
Jamie Golombek Oct 10, 2011 Financial Post
If you own more than $100,000 of foreign assets but have innocently forgotten to file Form T1135, the “Foreign Income Verification Statement,”
over the past number of years, you ought to pay close attention to the proceedings of several cases to be heard Tuesday in the Federal Court of
Appeal in Ottawa.
The cases involve the Asper Group of Companies which failed to file T1135 Forms for seven companies over the course of four years until asked to do so by the Canada Revenue Agency.
Form T1135 is the form Canadian taxpayers (including corporations) must file annually if you own or hold foreign property at any time in a tax year with a total cost of more than $100,000.
On the T1135 Form, you are asked to state the types of foreign investments you own, the total cost of those investments along with their geographical locations. You are also asked to identify the total income you reported on your tax return from the identified foreign investments.
While one can understand the government’s desire for Canadians, who have an obligation to report worldwide income on their tax returns, to come forward and disclose truly offshore or foreign investments as means to aid CRA in preserving the integrity of our self-reporting taxation system, the T1135 must also be completed to disclose foreign investments held in Canadian brokerage accounts.
In other words, if you own more than $100,000 worth of shares of Apple or Microsoft in your Canadian self-directed non-registered trading account you have an annual T1135 reporting obligation.
Forgot to file? If you’re caught, like the Asper Group, you face late-filing penalties of $25 per day, to a maximum of $2,500. While historically, the CRA used to waive these harsh penalties for first time, non-filing offences, the CRA abandoned that policy and has been assessing penalties even on first time occurrences. It’s estimated the Asper Group could be facing over $75,000 in penalties and non-deductible arrears interest on those penalties if their appeals are not successful.
The Asper Group’s troubles began in 2000, when their accounting firm incorrectly concluded that T1135 forms were not required where an investment portfolio was managed by a Canadian investment manager and was subject to Canadian tax reporting requirements. As a result, they stopped filing the Forms beginning in 2000 until they were asked by the CRA to do so in 2005 for the 2000 to 2003 tax years. It should be stressed that during each of these years, the Asper Group fully reported and paid tax on all their foreign income.
The Asper Group cases were first heard at the lower Federal Court in September 2010 when the companies sought a judicial review of the CRA’s decision to deny their request for relief from penalties and arrears interest reassessed due to the late filing of their T1135 forms. The Court had to decide whether the CRA’s decision not to forgive penalties and interest was reasonable.
The Judge found that the CRA acted within its bounds to deny relief and thus the Asper Group finds themselves in the Court of Appeal requesting the panel of three appellate judges to review whether the lower court was correct in dismissing their application for a review of the CRA’s decsion not to cancel or waive the T1135 penalties and interest.
Orignal post at www.business.financialpost.com
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