In case you file your tax return late, you’ll usually solely face a penalty if there’s an quantity owing in your return. However, when you occur to personal sure foreign property , you might be hit with a late-filing penalty from the Canada Revenue Agency for merely failing to file Form T1135 , the International Revenue Verification Assertion, on time.
This way is required when you personal “specified overseas property” the place the overall price quantity of all such property, at any time within the 12 months, was greater than $100,000. International property contains such belongings as a U.S. checking account, in addition to shares of overseas companies if held in a non-registered account. Private use property, akin to a Miami trip rental, is excluded, as are any belongings held in registered accounts.
The penalty for failing to file the shape on time is $25 per day, to a most of $2,500, plus arrears curiosity. In case you’re assessed a penalty, you possibly can write to the CRA requesting reduction when occasions “past your management” forestall you from submitting on time. If the CRA denies your request for reduction, you possibly can then take the matter to federal court docket the place a choose will resolve whether or not the CRA officer’s resolution to disclaim reduction was cheap.
A July 2026 federal court docket resolution handled a pair who confronted penalties for failing to file their 2021 T1135s on time. They claimed the delay was the results of their reliance “on deceptive and incomplete info from the CRA.”
The taxpayer owns industrial property within the U.S. by means of varied restricted legal responsibility partnerships from which he earns rental earnings. His spouse additionally has investments within the U.S.
In 2020, the taxpayer bought considered one of his properties, which resulted in a capital acquire. Whereas making ready his 2020 tax return, his accountant calculated the capital acquire on the sale, however the taxpayer believed the estimate was “considerably inflated.” To keep away from penalties and curiosity for late-filing their returns, the taxpayer and his partner nonetheless filed their 2020 earnings tax returns based mostly on the upper determine, counting on the accountant’s assurance that they may alter their 2020 returns later to mirror the right capital acquire.
And, in April 2022, that’s precisely what the taxpayer did, submitting a T1 Adjustment Request for the 2020 tax 12 months that diminished his capital acquire. Consequently, this allowed the taxpayer to decrease his 2020 RRSP deduction, thereby releasing up unused RRSP contribution room to hold ahead and deduct in 2021.
Later that month, the taxpayer reached out to the CRA to examine the standing of his 2020 adjustment. As his 2020 reassessment was nonetheless pending, he was suggested by a CRA agent merely to submit his 2021 tax return on time with out claiming the newly freed-up RRSP carryforward room, which might not but be mirrored within the CRA’s methods. He was then advised that after he obtained each the 2020 and 2021 notices of (re)evaluation, he might file a brand new adjustment request for the 2021 tax 12 months, amending his RRSP deduction declare.
Hoping to keep away from submitting one other adjustment request for 2021, the taxpayer determined that he would as an alternative watch for his 2020 reassessment, and easily file the couple’s 2021 returns late. He reached out to the CRA and requested concerning the penalties of late-filing, and was advised by a CRA agent that “penalties are charged when you file your return late and have a stability owing.”
Because of this, the April 30, 2022, tax submitting deadline got here and went, and the taxpayer hadn’t but filed his or his spouse’s 2021 returns. April 30 was additionally the deadline for submitting their T1135 kinds to report possession of overseas property.
In July 2022 the taxpayer obtained his 2020 discover of reassessment and in mid-December 2022, almost eight months after the April 30 deadline, the taxpayer and his spouse filed their 2021 returns, together with their T1135 kinds. Neither owed taxes for 2021 and each obtained refunds.
In January 2023, the CRA issued notices of evaluation for the 2021 tax 12 months, and assessed a penalty of $2,500 to every of them, plus arrears curiosity, for late-filing their T1135s.
The taxpayer wrote to the CRA asking for penalty reduction, however was denied. He requested a second-level overview, noting that he had particularly requested the CRA about late-filing penalties and “was assured that except I owe tax, there can be no penalty.” He asserted that “the CRA web site and the Federal Revenue Tax and Profit Information are deceiving” as a result of the Penalties part solely states that CRA might cost a penalty when you “1) file your return late and owe tax, 2) did not report an quantity, or 3) made a false assertion or omission.” None of those causes utilized to his scenario.
He additional argued that the truth that a selected kind can have its personal separate penalty is “not ‘basic data’ however relatively particular data.” He concluded that the “CRA has made it just about not possible to grow to be conscious of that truth except you already know that particular kinds might incur a penalty and particularly search for the shape.”
In July 2024, the second-level CRA agent denied the taxpayer’s request for reduction. Because the agent wrote, “Oversight, lack of information, or unintentional error should not thought-about circumstances past a taxpayer’s management.”
The taxpayer determined to take the matter to court docket, in search of a judicial overview by a federal court docket choose, whose position it’s to find out whether or not the CRA officer’s resolution to not grant reduction was cheap.
The taxpayer relied on two principal arguments: that he was misled by the knowledge obtained from a CRA agent and that the knowledge accessible on the CRA web site made it “just about not possible” to know if there was a selected penalty for the late submitting of Kind T1135.
In court docket, the taxpayer acknowledged that in his cellphone name with the CRA about penalties, he didn’t point out kind T1135 and solely requested if there can be a penalty if he waited for the results of his 2020 T1 adjustment request and filed his 2021 tax return late in order to make use of the right RRSP deduction quantity.
As for the taxpayer’s declare that the T1135 penalty info was not “available” on the CRA’s web site, the taxpayer was alluding to the truth that he would have needed to click on by means of a number of hyperlinks to search out the related info.
The choose discovered the taxpayer’s arguments unpersuasive and concluded that the CRA officer’s resolution to not grant reduction was, certainly, cheap, dismissing the taxpayer’s case.
Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto. Jamie.Golombek@cibc.com .
In case you preferred this story, sign up for more within the FP Investor e-newsletter.
