written on behalf of Feigenbaum Law
For Canadians who own property in the United States, filing a T1135 Foreign Income Verification Statement is mandatory in order to declare the property to the Canada Revenue Agency (CRA) for tax purposes. The failure to file a T1135 has penalties associated with it. For most Canadians, the CRA trusts that they will accurately report their own income and holdings for tax purposes. However, the CRA does look for ways to catch people or corporations who fail to accurately report such data. According to an article recently published in The Financial Post, the CRA is actively looking for those who fail to report real estate held in the U.S.
A Request for Information
The CRA posted a Request for Information (RFI) on June 25 titled “Bulk United States (U.S.) Real Property Data (re Canadian residents).” An RFI is an early-stage process where a person or group, in this case, the CRA, looks for information about possible property vendors. This is opposed to a Request for Proposal (RFP) which seeks information related to an eventual business agreement.
The RFI states that the CRA requires U.S. real estate and real property data when that property is owned by a Canadian resident or when a Canadian resident is involved in the purchase, sale, or transfer of real estate. The CRA explained that it is seeking the data in order to enforce Canadian tax regulations.
What data is being sought?
The RFI is seeking information relating to situations where a “Canadian resident is the owner or party to the purchase, sale, or transfer. Real estate and property data is required in bulk form in order to identify current and historical records, mortgage transactions, property taxes, real property records, and deeds. This information will enhance the CRA’s ability to administer tax programs, to enforce the various Tax Acts in order to protect Canada’s revenue base, and to support its business and research processes.”
The RFI explains that it is looking to receive and review data going back six years, which indicates it is looking to do an audit of taxpayers who may have recently avoided filing a T1135.
Penalties for not Filing
Only property valued at over $100,000 (in Canadian funds) requires the owner to file a T1135. However, this does not include vacation property used primarily as a personal residence or other types of “personal use property.”
The failure to report such property comes with hefty fines. The CRA explains that failing to file a return will cost a taxpayer $25 per day for up to 100 days (with a minimum of $100 and a maximum of $2,500). The maximum penalty, however, applies to each tax year, meaning someone found to be delinquent over a significant period of time could face severe financial penalties.
The story recalls a situation in 2018 where a woman moved with her husband and children to Canada and became permanent residents. They owned property in Michigan which they had lived in prior to moving. They continued to own the home and rent it out in their absence. The husband included the property in his T1135, but the wife had not filed tax until years later when she did so in order to claim Canada Child Benefits. It was at this time that the CRA noticed she had not filed a T1135 in the two years prior, sticking her with a bill of over $5,000. The wife appealed the penalty stating she had believed she was following the rules, and that she was only obliged to file a form if she filed taxes. However, her request for relief was denied. She eventually had one year of penalties dropped, but was on the hook for the other.
Tax can be a complicated topic even in simple situations. For those living, working, or holding property in both the United States and Canada, things can become even more complicated. Contact the experienced cross-border legal and accounting team at Feigenbaum Law to get a custom solution to your personal tax planning needs. We can be reached online or by phone at (877) 275-4792.