The problems with unreported foreign income for Canadians

Owning foreign property is not a bad thing here in Canada. The problem will only arise if there is a property that the Canada Revenue Agency does not know about and there is problem of unreported foreign income. There is an automatic penalty on a taxpayer that fails to file returns of their overseas property and earnings by the preset due date. About a decade ago the Canadian government, through its chief tax collector, the CRA, decided to seriously identify local foreign investors.

It came up with new rules and regulations that required all offshore investors to declare their unreported foreign income and assets. It demanded that all specified foreign investments with a total cumulative cost of over one hundred thousand Canadian dollars be reported on personal income tax returns. Now there are fewer and fewer tax evaders with regard to offshore property and income ownership.

Do you really know what you must report to the CRA?  There is a tax return form T1135 that must be filled with information about your international unreported foreign income. Locate Foreign Income Verification Statement on the form. Go straight to page two and you will see this question: did you own or hold foreign property at any time in the year with a total cost of more than can$100,000?  If you have property ownership that is worth this much, just declare it via the T1135 form.

The T1135 form must be submitted separately to a specific department within CRA. There are many items you need to mention under the unreported foreign income. These include:

  • Shares of your local company you have deposited with an international foreign broker.
  • Shares of overseas companies you have deposited with a local or a foreign broker.
  • Precious metal investments and/or futures kept overseas.
  • Intellectual property kept outside Canada.
  • Monies in foreign accounts.
  • Rental property outside Canada.
  • Interests earned in mutual funds that are managed outside Canada.
  • Any rights to specific overseas property.
  • Any asset you have that can be exchanged for a right to own a given foreign property.
  • You have an interest in a foreign partnership and your share of profit or loss is more than ninety percent.
  • Interest on any foreign partnership property.
  • Incomes owed by foreign persons like debentures, accounts receivable, bonds or mortgages among others.

If you also have an interest in an entity or trust that is organized outside Canada you are required to reveal it to the CRA. When disclosing unreported foreign income, there are items you are not going to report.   There is a list of things including properties you have used or held purely to be able to run an ongoing business and a personal use asset like a dwelling. Others include mutual funds trust held locally yet having foreign investments and any registered investment portfolio under section 204.4 of the Act.

The consequence for failing to unreported oversea properties and unreported foreign income generated by the properties located outside of the country can be serious. It involves large penalties and compounded daily interests. If you have been unreporting your oversea assets and income, it is advisable to seek professional help to control the damage immediately before the CRA catches up on you first.