finance | BCBusiness
If you hold U.S. investments, including stocks or real estate, Canada Revenue has introduced some onerous new reporting requirements this year, with harsh penalties for failure to comply
You’ve made your RRSP and TFSA contributions. You’ve done your end-of-year tax-loss selling. You’ve contributed to registered charities. You’ve done all the right things to manage your taxes. Now that March is here, the focus shifts away from tax-savings strategies to actual tax filing.
As B.C. investors collect all their tax slips needed to file their returns, such as T3s (Statement of Trust Income Allocations and Designations) and T5s (Statement of Investment Income) they should be aware of new filing requirements coming up. One in particular is causing a stir for some investors.
The Canada Revenue Agency announced last year that a “Foreign Income Verification Statement”—known as a T1135—would be a necessary filing for the 2013 tax year for those with investments outside of Canada that have a book value of more than $100,000. Accountants are alerting their clients about this new filing burden and informing them of the relatively harsh penalties that the CRA may impose for failing to provide the required information.
This new requirement can be confusing. First of all, the term “specified foreign property” used in the T1135 is not clear. It is intended to include investments, including income-producing real estate, outside of Canada. However, there are various exemptions that allow taxpayers to reduce the T1135 filing requirements. The most notable exemptions are mutual or pooled funds held at Canadian institutions; they do not require a T1135 filing. Non-Canadian securities that pay income (dividends) that is captured on a T3 or T5 slip must be reported on a T1135, but only require a minimal disclosure. However, securities held at Canadian institutions that do not pay dividends and securities held with a U.S. institution must be included in the filing.
The information required can make completing a T1135 an onerous process. The CRA is realizing this and has eased the burden somewhat, although only for 2013 at this point. It’s extending the filing deadline to July 31, 2014. Also, instead of requiring details for each security to be broken out on “specified foreign property,” it has agreed to accept combined values.
Despite these minor concessions, the T1135 is still an administrative burden, especially when considering that publicly traded foreign securities were very clearly reported to the CRA on behalf of taxpayers before the advent of the T1135. However, it’s still important to work closely with your accountant or financial advisor to make sure the required information around the T1135 is provided.
Other Tax-Filing Tips
An overlooked or misunderstood deduction is usually investment management fees. These fees are deductible only for fees charged on taxable investment accounts, and not for registered accounts, including TFSAs, RRSPs and RRIFs. Fees that are charged within a mutual or pooled fund are not an eligible deduction, since the investor has received his return after fees. The fees have been effectively deducted already.
While the tax filing deadline for individuals is April 30, 2014, the collection of tax slips can go on until the end of March—the deadline for banks and investment companies to mail out their T3 slips. While taxpayers wait for this information, they are also reminded that calculating the gain on their funds or securities is not required to be captured on an issued tax slip. Do-it-yourselfers will have to calculate those gains and losses while some investment companies summarize all of that information annually.
Finally, remember to download any investment-related tax slips that may have been sent to you by an institution electronically rather than by mail.
Tax rules and reporting can be complex, so make sure you consult a tax or other professional regarding your specific situation.
Jon Palfrey is senior vice-president, Private Clients & Foundations at Leith Wheeler Investment Counsel Ltd. in Vancouver. This article is not intended to provide advice, recommendations or offers to buy or sell any product or service.