Blog post

Key Points

• A $10,000 fine was imposed for late filing of the T1135 form, which reports foreign assets.
• The T1135 form is mandatory for Canadians with foreign property exceeding CAD 100,000.
• Failure to file the T1135 on time can result in significant penalties, even if no tax is owed.
• Filing extensions do not apply to the T1135, making timely submission crucial.
• Consulting a tax professional can help ensure compliance and avoid costly fines.

If you need help in reviewing your cross-border tax or investment situation, please feel free to reach out to us here. We look forward to speaking to you soon.

Question

Hello,

A friend of mine was recently fined $10,000 by the CRA for failing to file a T-1135 form. Unfortunately, this is the 2nd time he has been fined. The subject taxpayer is a retired civil engineer in his mid-70’s… he relies on the services of a CPA and investment brokers and does not have much tax knowledge. Unfortunately, it appears that his broker didn’t supply a T-1135 reminder and or complete the forms for him and his accountant slipped up as well, now on 2 occasions.

The amount of assets to report on the form has varied greatly from 2005 through to 2023, from nothing to over $100,000 to below $100,000 for a few years to, again, above this threshold… at no time did the asset values exceed $250,000.

When the CPA forgot to file the first time, the VDP was used and penalty/interest relief was granted… the 2nd time occurred because there was a period of about 3 years when there was no need to file and when that requirement became apparent again, everyone missed it and then another voluntary disclosure was made, but to no avail. We did file an appeal to the CRA and it was denied.

We are now considering going to the Tax Court of Canada, arguing that the penalty is severe and unwarranted given that all foreign investment income has always been declared. Also, the taxpayer is unsophisticated and relies upon his advisors who admit they made a mistake.

Do you see any hope of relief being granted by the TCC?… any suggestions?

Thanks!

XXXXXX

Answer

Hi XXXXX

Thanks for the email and sorry to hear about your friend’s challenges with T1135 filings.

I’m assuming the penalty was $10,000 given the second offence and maybe a gross negligence penalty as well.

Having his tax CPA and broker both miss this is concerning.

Taking the case with TCC would be a challenge and quite expensive potentially. You might be able to convince a good Canadian tax lawyer to take the case pro-bono, however there are a lot of T1135 cases in the system and I haven’t seen any lately hitting the courts lately.

The last decision I see relating to T1135 for the tax court of Canada is the Samson case: Samson v. The Queen – Tax Court of Canada.

That case would likely be used as precent for your friend’s case and they specifically state in the case that penalties should be assessed even if he relied on other professionals for guidance:

“Taxpayers cannot rely solely on the advice of professionals to avoid penalties; they must take active steps to understand and comply with their obligations under the tax laws”

Wish I had better news. Might be worth running this by a good tax lawyer to see if he has a case.

Regards

Phil