I met with a client a few weeks ago that needed some advice on whether or not to disclose his Swiss offshore investment accounts. I was reminded again by how important it is for Canadians to ensure they not only report income from all of their assets but also properly submit foreign asset disclosures to CRA. This gentlemen didn’t necessarily want to “hide” assets from the tax authorities he was simply careless in reporting the offshore assets. The investment account in question didn’t earn much income after related fees however the accounts were not properly disclosed on form T1135 – Foreign Income Verification Statements.
The ever changing foreign income verification form is required to be completed if a taxpayer owns foreign investment or real estate assets with a cost of more than $100,000. Simplified reporting is available for those with a cost of under $250,000.
For those taxpayers that have neglected to report these foreign accounts there is a remedy. If eligible you’ll be able to catch up any delinquent foreign verification statement submissions and adjust any under-reported income tax returns under the CRA voluntary disclosure program. You’ll first need to ensure you are eligible to submit under the program, but once you are certain you qualify submitting returns and information filings under this avenue it can be a great way to catch up on undisclosed accounts and essentially “come clean” to CRA.
Those that consider continuing to “hide” these accounts offshore should be forewarned. CRA is currently allocating a fair amount of resources to tracking down offshore accounts held by Canadians. If they discover your foreign accounts before you properly disclose them yourself you’ll face significant penalties and possible jail time.
Penalties for late filing of form T1135 is $25 a day to a maximum of $2,500 plus interest. For most people that file these forms late (or if CRA makes you file these forms before a disclosure) the penalties will already be at the maximum. CRA will also go back as far as they can to assess penalties on late disclosures. For instance, they may go back 10 years for late T1135 filings. Penalties could be well in excess of $25,000 once interest is calculated. They could also access additional gross negligent penalties on top of the regular penalties which would further increase the amounts owing.
My intention in outlining these potential penalties is not to instill fear into potential late filers but rather to outline the importance and potential severity of not filings foreign income reporting forms. Once penalties are assessed by CRA is extremely difficult to convince CRA to reduce or fully abate the penalties. Unless you can be successful under the CRA taxpayer relief program, which will often only work in cases of medical and/or natural disaster reasons, the penalties will be payable in full and CRA will forcefully start collections as soon as they can.
If you currently own foreign assets and are not sure of your filing requirements call me at 250-381-2400 and I’ll do my best to walk you through your reporting requirements and any steps you may need to take in order to become compliance in reporting your offshore investment and bank accounts.