- The basic late-filing penalty is $25 per day for up to 100 days, with a minimum of $100 and a maximum of $2,500.
- Knowing or grossly negligent failures can bring much larger penalties.
- The due diligence exception in section 233.5 does not apply to T1135 penalties.
- The Voluntary Disclosures Program may be available, but you must file a valid disclosure.
Form T1135 is easy to miss, especially if you own a rental property or investments abroad and did not realize your total cost went over the reporting threshold. Discovering the gap years later can be stressful.
This article sets out the penalties the CRA can apply for late or missed T1135 filings and how the Voluntary Disclosures Program may help. Your exposure depends on your facts, so speak with a lawyer or accountant before you act.
When a T1135 is required
A T1135 is required if the total cost of specified foreign property was more than $100,000 at any time in the year. The test is cost, not fair market value.
Once you are over the threshold, all specified foreign property held during the year is reported, even if you sold some of it before year-end.
Specified foreign property is defined in subsection 233.3(1) of the Income Tax Act and excludes personal-use property. The CRA reads personal use as primarily meaning more than 50% personal use, and foreign property that is mainly rented out for profit is not personal-use property, so its entire cost is reported. A property used partly for personal enjoyment and partly for rent is a question of fact, so it is worth confirming how it applies to you.
Simplified reporting (Part A) is available where the total cost of specified foreign property was less than $250,000 throughout the year. At $250,000 or more at any point, detailed Part B reporting is required.
The form is due on or before the due date of the income tax return: April 30 for most individuals and June 15 for self-employed individuals. A form filed after that date is late.
The penalties
The CRA applies different penalties depending on how serious the failure is. The table summarizes them.
| Situation | Penalty |
|---|---|
| Late filing (s. 162(7)) | $25 per day for up to 100 days; minimum $100, maximum $2,500 |
| Knowing or grossly negligent failure (s. 162(10)) | $500 per month for up to 24 months (maximum $12,000) |
| Same failure after a CRA demand | $1,000 per month for up to 24 months (maximum $24,000) |
| After 24 months (s. 162(10.1)) | Further penalty of 5% of the relevant cost |
| False statement or omission (s. 163(2.4)) | Greater of $24,000 or 5% of the relevant amount |
The due diligence exception in section 233.5 does not apply to T1135 penalties. That means a good-faith mistake does not automatically remove the penalty.
Whether a failure is treated as simple lateness or as knowing or grossly negligent depends on the facts. That is a key question to review with an adviser.
If you missed more than one year, it helps to look at each year separately. The cost of your foreign property, whether you were over the threshold, and the way the failure is characterized can differ from one year to the next.
The Voluntary Disclosures Program
The Voluntary Disclosures Program may be available to taxpayers who omitted information or did not file a T1135. To qualify, the taxpayer must file a valid disclosure.
The details of what makes a disclosure valid, and what relief may follow, are set by the CRA and depend on your circumstances. A lawyer or accountant can confirm whether your situation fits and help prepare it.
- Gather information for every year you missed, not only the latest one.
- Expect to explain what the property is and what it cost.
Related reporting that may also be affected
Missing a T1135 often goes together with other unreported items. Rental income from real estate is reported on Form T776, with net income or loss going to line 12600 of the T1 return. How this applies to foreign rental income is worth confirming with a lawyer or accountant. If you paid foreign tax, a credit may be available using Form T2209.
For each country, the federal credit is generally the lesser of the foreign income tax actually paid and the Canadian tax otherwise payable on net income from that country.
Foreign income and tax must be converted to Canadian dollars using the Bank of Canada exchange rate in effect on the day the amounts arose. For multiple payments over the year, the CRA directs use of the average annual rate.
If you also sold a foreign property, how that sale is reported depends on your situation, so it is worth confirming with a lawyer or accountant.
What to do next
- List each year you should have filed a T1135.
- Gather the cost of each foreign property or asset for each of those years.
- Note whether the CRA has already contacted you about the issue.
- Collect income records and foreign tax receipts for the same years.
- Speak with a lawyer or accountant about a voluntary disclosure.
Do not guess at the penalty amount. The right figure depends on how many years are involved and how the failure is characterized.
It also helps to review your T1135 questions together with your income tax returns for the same years, since the two often need to be looked at side by side. A lawyer or accountant can help you decide which years and which forms to deal with first.
Frequently asked questions
What is the usual penalty for filing a T1135 late?
It is $25 per day for up to 100 days, with a minimum of $100 and a maximum of $2,500.
Can I avoid the penalty by showing I made an honest mistake?
The due diligence exception in section 233.5 does not apply to T1135 penalties. An honest mistake may still matter when the CRA decides how to characterize the failure, so get advice.
What happens if the CRA says my failure was knowing or grossly negligent?
The penalty can be $500 per month for up to 24 months (maximum $12,000), or $1,000 per month for up to 24 months (maximum $24,000) after a CRA demand. A further 5% of the relevant cost applies after 24 months.
Can the Voluntary Disclosures Program help if I never filed?
It may be available to taxpayers who omitted information or did not file a T1135, as long as they file a valid disclosure. A lawyer or accountant can confirm whether it fits your situation.
Do I need to file if my foreign property is mainly rented out?
Foreign property that is mainly rented out for profit is not personal-use property, so its entire cost is counted toward the $100,000 test. Whether a mixed-use property counts is a question of fact, so confirm your situation with a lawyer or accountant.
Sources
- CRA Guide T4036, Rental Income — canada.ca
- CRA, Questions and answers about Form T1135 — canada.ca
- CRA, Foreign Income Verification Statement — canada.ca
- CRA, Table of penalties (foreign reporting) — canada.ca
- CRA, Line 40500 Federal foreign tax credit — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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