In December 2014, the Canada Revenue Agency (CRA) issued a letter to a sample of taxpayers to remind them of the criteria for filing a T1135-Foreign Income Verification Statement and to review their income tax filings to ensure they have been properly reporting the relevant assets and income.
All Canadian resident taxpayers are required to file Form T1135 if at any time in the year the total cost amount to the taxpayer of certain foreign property was C$100,000 or more.
The CRA letter further details the gross negligence penalties and potential for criminal prosecution for failure to file the requisite forms where the CRA conducts an audit identifying unreported offshore income or undisclosed assets. The CRA also reminds the taxpayer that the CRA’s Voluntary Disclosures Program (VDP) is available if the taxpayer has previously not complied with the rules or if the taxpayer has filed returns that do not accurately reflect offshore assets or foreign income.
There is some concern that taxpayers who received the letter may not have been randomly selected, as there are a number of ways the CRA may have received the necessary information regarding the holders of offshore accounts (i.e. reports from banks and tax authorities in OECD countries, reports from Canadian banks regarding foreign transfers, etc.). The Offshore Tax Information Program offering essentially a 15 per cent reward to informants could also be the impetus for this correspondence.
The CRA indicated to members in the professional community that the receipt of this letter will not preclude the taxpayer from making a valid VDP submission provided the taxpayer is not aware of, or had knowledge of an audit, investigation or other enforcement actions set to be conducted by the CRA or any other authority or administration with respect to the information being disclosed to the CRA.
Given the increased effort by the CRA to target this particular area and the recent revamping of the T1135 Information Return and its contents, taxpayers are urged to review their foreign assets and speak to their Collins Barrow tax advisors regarding their reporting obligations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
