Published: March 4, 2020
Last Updated: October 21, 2022
There are substantial penalties for failing to complete and file T1135 forms if required. If CRA discovers that a taxpayer has not complied with their T1135 filing requirements, the penalties levied on the taxpayer may include:
- Failure to Comply (Income Tax Act s.162(7))
- Failure to furnish foreign-based information (Income Tax Act s.162(10)(a) and (b))
- Additional penalties after 24 months (Income Tax Act s.162(10.1))
- Gross negligence or false statements and omissions (Income Tax Act s.163(2.4))
- A simple (but heavy) late-filing penalty (i.e. failure to comply) is $25 per day up to a maximum of $2,500 per year.
failure to furnish foreign-based information penalty is levied when the failure to file is done knowingly or under circumstances amounting to gross negligence, and is a penalty of $500 per month up to a maximum of $12,000 less any penalties already levied.
failure to furnish foreign-based information penalty is issued where a demand to file a return is issued and the person knowingly or under circumstances amounting to gross negligence fails to file, and is a penalty of $1,000 per month up to a maximum of $24,000 less any penalties already levied.
After 24 months the penalty for non-filers becomes 5% of whichever of the following events led to a requirement to file: cost of the foreign property, fair market value of the property transferred/loaned to the trust, cost of shares, and indebtedness of the foreign affiliate.
Finally, gross negligence penalties or a penalty for false statements and omissions can be applied and are the greater of $24,000 or 5% of the event leading to a requirement to file, taken from the list in the preceding paragraph.
However CRA specifically allows a voluntary disclosure application (VDP or tax amnesty) to be filed in respect of Form T1135s that have not been submitted on time. The normal voluntary disclosure rules apply, so the VDP submission, normally done by a Canadian tax lawyer to provide solicitor client privilege, must be done before a request to file is issued by CRA.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."