A Refresher on the Federal Income Tax Act’s Specified Foreign Property Reporting Regime

Published by Vivian Esper

Canada taxes its residents on their worldwide income, including income earned and gains realized outside Canada (subject to the potential application of specific rules in tax treaties). The federal Income Tax Act (the “ITA”) also requires that residents disclose specific types of foreign property when certain thresholds are met. Taxpayers who fail to satisfy these reporting obligations may be subject to substantial penalties and an extension of the timeframe within which the Canada Revenue Agency (the “CRA”) is permitted to reassess them.

This blog post is a refresher on the “specified foreign property” reporting provisions in the ITA, with a focus on those applicable to individuals. Separate foreign reporting obligations apply to interests in “foreign affiliates”, which are outside of the scope of this article. We encourage those who hold interests in foreign corporations to consult with a tax professional regarding such obligations.

Who needs to report

Section 233.3 of the ITA imposes an annual reporting requirement on each “specified Canadian entity” (“SCE”) that holds “specified foreign property” (“SFP”) the aggregate “cost amount” of which exceeds $100,000 at any time (other than a time, if any, when the entity is non-resident) during the relevant year.

An SCE is defined in subsection 233.3(1) and includes, subject to limited specified exceptions, “a taxpayer resident in Canada in the year”. Thus, the vast majority of individuals, trusts, and corporations are SCEs for purposes of the SFP rules. Partnerships are also SCEs if, generally, Canadian-resident partners receive at least 10% of the partnership’s income or loss for the year.

What needs to be reported

SFP is defined in subsection 233.3(1) to mean, inter alia:

  • any funds or intangible property situated, deposited, or held outside Canada,
  • tangible property situated outside Canada;
  • a share of the capital stock of a non-resident corporation (however, see below for an exception regarding foreign affiliates);
  • an interest in a non-resident trust;
  • an interest in a partnership that owns or holds specified foreign property;
  • an interest in, or right with respect to, a non-resident entity; and
  • indebtedness owed by a non-resident person.

SFP does not include:

  • property used or held exclusively in the course of carrying on an active business of the person or partnership (determined as if the person were a corporation resident in Canada);
  • a share of the capital stock or indebtedness of a non-resident corporation (or an interest in, or indebtedness of, a non-resident trust) that is a “foreign affiliate” (as defined in subsection 95(1) of the ITA, subject to certain modifications) of the person or partnership (noting that such share or indebtedness may be subject to a separate reporting obligations under section 233.4 of the ITA, which is beyond the scope of this post);
  • an interest in a non-resident trust that was not acquired for consideration by the person or partnership (or any related person );
  • “personal-use property” of the person or partnership (including, for example, a vacation property that is primarily used for personal enjoyment); and
  • listed personal property (such as works of art, jewelry, rare folios, rare manuscripts, rare books, stamps, and coins).

How to determine cost

In determining the “cost amount” of SFP, one must refer to the definition of “cost amount” in subsection 248(1) of the ITA.  Of note, the “cost amount” of a capital property is its adjusted cost base (“ACB”) to the taxpayer. For recent immigrants to Canada, the ACB will generally be the property’s fair market value on the date of immigration. Other rules apply to different types of property (e.g., depreciable property and inventory) or those held by certain types of taxpayers (e.g., financial institutions or insurers).

How to report and reporting deadline

Taxpayers subject to the reporting requirement under section 233.3 of the ITA must file a T1135 Foreign Income Verification Statement (“T1135”).  The deadline to file a T1135 is on or before the due date of the taxpayer’s income tax return or, in the case of a partnership, the due date of the partnership information return.  This deadline applies even if the taxpayer is not required to file an income tax return (or partnership information return).

Individuals (other than trusts) are not required to file a T1135 in respect of their SFP for the first year in which they became a resident of Canada.

If the aggregate cost amount to an SCE of foreign property does not exceed $250,000 throughout the year, the SCE may choose to complete only the simplified portion of the T1135 (Part A). That Part only obligates the SCE to check the box corresponding to each type of SFP held, state the top 3 countries where the SFP is located (based on “cost amount”) and indicate the aggregate income and gain (or loss) arising from such property.

If, however, the $250,000 cost amount threshold is exceeded at any time throughout the year, an SCE must complete the more detailed portion of the T1135 (Part B). That Part obligates the SCE to provide specific information, including – where applicable – a description of the property, the name of the corporation in which shares are held, and the name of the bank holding funds. In addition, the SCE must specify – for each property – the country in which the property is located, the maximum “cost amount” to the SCE of the property during the year and the income, and the gain or loss from each property.


The table below generally summarizes the penalties which may be imposed if a taxpayer fails to file a T1135 or makes any omission or inaccurate statement in filing a T1135.

Item # Provision Circumstances Penalty Amount Maximum Penalty
1 162(7) Failure to file T1135 $100 plus $25 times the number of days during which failure continues (to a maximum of 100 days) $2,500 per year
2 162(10)(a) Failure to file T1135 knowingly or under circumstances amounting to gross negligence $500 per month until the T1135 is filed, to a maximum of 24 months $12,000 per year
3 162(10)(a) and (b) Receipt of demand to file T1135, and either original failure to file T1135 as and when required or failure to comply with demand was made knowingly or under circumstances amounting to gross negligence $1,000 per month until the T1135 is filed, to a maximum of 24 months $24,000 per year,
4 162(10.1) Penalties under subsection 162(10) are applicable and the T1135 is more than 24 months late 5% of the greatest total “cost amount” to the SCE of SFP in the year or period (less any penalties payable under subsections 162(7) or 162(10)) No maximum
5 162(5) Failure to provide required information on the T1135 $100 per failure $100 per failure
6 163(2.4)(c) Knowingly, or under circumstances amounting to gross negligence, making (or participating in, assenting to, or acquiescing in, the making of) a false statement or omission in a filed T1135 Greater of $24,000 and 5% of the greatest total “cost amount” to the SCE of the SFP in respect of which the false statement or omission was made No maximum

Taxpayers may dispute the imposition of penalties in relation to an alleged failure to file a T1135 or an alleged omission or inaccurate statement made in a filed T1135. In the case of “gross negligence” penalties imposed under subsections 162(10) or (10.1) or paragraph 163(2.4)(c), the Minister of National Revenue bears the burden of proving that the act or omission was made by the taxpayer knowingly or under circumstances amounting to gross negligence. Conversely, in the case of “strict liability” penalties under subsections 162(5) or (7) (which are levied for the mere occurrence of the act or omission), taxpayers have an opportunity to assert a “due diligence” defence. In the recent decision of Moore v. The Queen (2019 TCC 141), for example, the Tax Court vacated the assessment of penalties for failure to file a T1135 on the basis of due diligence. Notably, the Court found that Mr. Moore was not cavalier about his income tax obligations, as all income associated with the SFP was properly reported and tax paid and no amount was misrepresented, mischaracterized or omitted from his tax return.

Extension of normal reassessment period

Under the ITA, the CRA typically has three years from the date of original assessment of a year to reassess a taxpayer. However, where a taxpayer: (a) fails to file a T1135, files a T1135 late, or incorrectly reports information on a T1135; and (b) fails to report, in their relevant income tax return, an amount in respect of an SFP that is required to be included in their income, paragraph 152(4)(b.2) extends that “normal reassessment period” by an additional three years. Thus, the CRA is given extra time to reassess a taxpayer for additional tax, interest or penalties if those two conditions are met.

Voluntary disclosures

Taxpayers who have failed to timely file a T1135 form, or report all information required to be contained thereon, may wish to consider initiating a disclosure under the CRA’s Voluntary Disclosures Program (the “VDP”)

Certain conditions must be fulfilled for a VDP application to be accepted, including that the application: (i) be voluntary, in that the CRA must not have initiated, or be set to conduct, “enforcement action” with respect to the information being disclosed; (ii) be complete, in that the application must provide full disclosure for all relevant taxation years where there was previously inaccurate, incomplete or unreported information regarding the taxpayer’s tax affairs; (iii) include information that is one year past due; and (iv) include payment of the estimated tax owing.  Provided that all the VDP conditions have been fulfilled, the CRA may waive some or all penalties, depending on whether the application is accepted under the General Program or the Limited Program. For more information on the VDP, please refer to the CRA Information Circular IC00-1R6 – Voluntary Disclosures Program.


The proper reporting of foreign assets is a serious matter that should not be overlooked. The specified foreign property reporting provisions in the ITA are detailed and complex, and backstopped by serious penalties. Taxpayers would be well-advised to seek the assistance of tax professionals to ensure full compliance with those rules.