Late T1135 Foreign Property Form: Can the VDP Cancel Penalties in Canada?

You owned property outside Canada, and you never filed Form T1135 to report it. You may now be worried about late-filing penalties and about any foreign income you also left off your returns.

This article explains how the Voluntary Disclosures Program (VDP) may apply, what it does and does not cancel, and what to prepare before you decide.

This article covers Canadian federal tax law, which applies in every province.

How the VDP treats a missed T1135

The CRA's questions and answers on Form T1135 say the VDP may be available if conditions are met, and that to qualify you must file a valid disclosure.

Without a valid disclosure, penalties for failing to file Form T1135 by the deadline may be relieved only under the taxpayer relief provisions, on written request. How the VDP applies to a missed T1135 in your case depends on your facts, so the general VDP rules below are a starting point.

The VDP lets a taxpayer come forward to correct errors or omissions, such as unreported income or unfiled returns. If the application is accepted, the CRA may give penalty and interest relief and will not refer the disclosed matter for criminal prosecution. The current circular, IC00-1R7, applies to applications received on or after October 1, 2025, and earlier applications fall under IC00-1R6.

The conditions you must meet

• The application must be voluntary and complete, with all supporting documents.
• It must involve interest, penalties or both, and include information at least one year past the filing due date.
• It must include payment of the estimated tax owing, or a request for a payment arrangement.
• It is not voluntary if an audit or investigation has already started against you or a related taxpayer for the disclosed information.
• Applications that produce a refund or no tax or penalties owing are generally not eligible.

If you are not sure whether a specific issue qualifies, an informal, anonymous discussion with the CRA is possible and is non-binding. An anonymous discussion is not an application, and relief requires a signed Form RC199 with full documents and payment.

Unreported foreign income and the longer reassessment period

A missed T1135 often goes together with foreign income that was never reported. The CRA lists not reporting foreign income taxable in Canada as a situation that may be eligible for the VDP.

The tax on that income must still be paid, because the VDP gives relief on penalties and interest, not on the tax itself. Relief levels depend on your application type. Unprompted applications normally receive 100% penalty relief and 75% interest relief, and prompted ones normally receive up to 100% penalty relief and 25% interest relief.

An application is generally unprompted if the CRA has not communicated with you about the compliance issue, or if the only contact was a general education letter. It is generally prompted if it follows CRA communication identifying a specific error or setting a correction deadline, or follows third-party information about your non-compliance.

There is also an exception to know about. The reassessment period is extended by three years if income from specified foreign property was not reported and Form T1135 was not filed, not filed on time, or filed inaccurately.

Records, look-back periods and how to apply

For income tax, supporting records generally cover the most recent six years, or ten years for assets or income located outside Canada. Years with no errors or omissions need not be included.

Relief is limited by the ten-calendar-year window in subsection 220(3.1) of the Income Tax Act, so older years may get reduced or no relief. The figures differ across CRA pages, so confirm the current ones before filing.

• A complete application includes the completed, signed Form RC199, all returns, forms and schedules needed to correct the non-compliance, and payment or a request for a payment arrangement.
• Use one submission method only: online, fax or mail.
• If a representative submits for you, both you and the representative must sign the application.
• After receiving the application, the CRA sends an acknowledgement letter with the effective date of disclosure, and relief runs up to that date if you qualify.

What to do next

• List each year you held foreign property and whether Form T1135 was filed.
• Check whether any income from that property was reported in Canada.
• Confirm that the CRA has not started an audit or investigation on this issue.
• Gather foreign account and property records, and estimate the tax owing.
• Complete the signed Form RC199 with the needed returns and forms, and payment or a payment arrangement request.

If you cannot pay in full, approval of a payment arrangement is not guaranteed. The CRA may deny an application as incomplete if requested information or documents are not provided within a reasonable timeframe. Even with relief, the CRA reserves the right to audit any information in the application.

Because T1135 penalties, foreign income and reassessment periods can interact, a lawyer or accountant can help you decide whether to apply under the VDP or request taxpayer relief.

Frequently asked questions