If you are interested in the reporting of foreign assets,
you definitely should not miss this article!

First question: Do all foreign assets need to be reported?

Under Canadian tax law, if at any time during the year an individual or corporation
owns foreign assets with a total cost of more than
$100,000 CAD, they must file the foreign income verification form
T1135.

The main types of foreign assets that must be reported include:

1. Foreign bank deposits
2. Shares of foreign private companies or publicly traded companies
   (excluding shares of foreign subsidiaries)
3. Debt owed by non-residents (foreign non-resident debt)
4. Interests in non-resident trusts
5. Foreign real estate (that is not used as a principal residence or for personal use)
6. Other foreign assets (e.g., offshore life insurance, gold and other investments)
7. Foreign securities held through a Canadian registered securities dealer
   (Canadian investment firm)

The following foreign assets do not need to be reported on T1135
even if their value exceeds $100,000 CAD:

1. Personal-use property (such as your own residence or car used for personal purposes).
   However, if there is a gain when the asset is sold, the capital gain must be
   reported as income in the year of sale.
2. Shares of your own foreign corporation.
   If the cost of those shares exceeds $100,000 CAD,
   you must instead report the foreign company’s operations and information on
   T1134 (Information Return Relating to Controlled and Non-Controlled Foreign Affiliates).

Second question: How is the value of foreign fixed assets defined?

Tax rules state that the value of foreign assets is determined based on the
adjusted cost base (ACB), not their current market value (fair market value).

For new immigrants, or for property acquired through gift or inheritance,
the cost of the foreign asset is the fair market value on the date of landing or receipt.

Example: You land in Canada on August 18, 2020.
The total value of your foreign assets is calculated using the market value
on August 18, 2020.
This cost basis is then converted into Canadian dollars using the exchange rate on that date
and reported in your first required foreign asset reporting year
(for example, on your 2021 personal tax return filed by April 30, 2022).

If the fixed assets are not sold or otherwise disposed of, their value for T1135 reporting
remains the original cost calculated at the time of landing/acquisition.
The exchange rate used is the rate at that time.
When the property is eventually sold, you convert the sale proceeds into Canadian dollars
using the exchange rate at the time of sale and compare it to the original cost in Canadian dollars
to determine whether there is a gain or loss.
This gain or loss is then reported on your personal tax return in the year of sale.

Regardless of the type of asset you hold, the most important thing is to
keep all supporting documentation for your foreign assets
in case the CRA requests proof.

For example:

• Foreign bank deposits: retain bank statements
• Foreign stock investments: keep monthly statements and trade confirmations
• Foreign debt: keep contracts and loan agreements
• Foreign real estate and other assets: keep professional appraisal reports or valuation documents

Third question: What are the deadlines for foreign asset reporting?

• For individuals, the filing deadline for foreign asset reporting
  is the same as the personal income tax filing deadline: April 30.
• For corporations, the foreign asset reporting deadline is the same as the corporate tax filing deadline:
  6 months after the end of the fiscal year.
• For new immigrants, foreign assets with a total cost over $100,000 CAD
  must be reported starting in the second year after landing
  (i.e., on the second personal tax return filed after becoming a resident).

Penalties for late or incorrect foreign asset reporting

For T1135 foreign asset reporting, the basic late-filing penalty is
$25 per day, up to a maximum of $2,500 per year.

If there is intentional non-compliance or gross negligence, penalties increase:

• For “intentional failure to file”, the penalty is $500 per month,
  up to a maximum of $12,000 within one year.
• If the CRA has already issued a demand to file and you still fail to file,
  the penalty increases to $1,000 per month,
  up to a maximum of $24,000.
• If non-compliance continues beyond 24 months,
  the penalty may be as high as 5% of the total cost
  of the foreign assets held.

It is important to note that reporting foreign assets does not automatically mean you owe tax.
Whether tax is owed depends on your income for the year,
not simply the amount of assets you own.

You can think of foreign assets as a hen that lays eggs.
The hen itself (the asset) is not taxed.
The “eggs” — the income and capital gains generated by the asset — are what may be taxable.