The more I read about the penalties for late-filing T1135 forms (the forms for foreign property reporting), the crazier they seem to me.
Readers of this blog will already be familiar with David Asper Holdings Inc. v. Canada, 2010 FC 896, in which the Court upheld the penalties for failure to file a T1135 for US securities held in accounts with a Canadian broker (about which the CRA already had full information because the broker was required to issue T-slips respecting income and proceeds derived from the securities). Consider the hapless taxpayer, however, in Leclerc v. The Queen, 2010 TCC 99, who late-filed his returns for 2003 and 2006 and dutifully included the T1135 with each of them, all without prompting from the CRA. The Minister responded by imposing late-filing penalties for the T1135s of $5000 in total ($100 per day to a maximum of $2500 per form) plus interest.
The Court was unsympathetic. It agreed that the taxpayer might have avoided liability by applying for relief under the voluntary disclosure program, but he didn’t (probably because he didn’t know about it) and so that was the end of the matter. The statute is clear that the penalties cannot be avoided just because a taxpayer made an honest error.
Consider also the position of an honest accountant of my acquaintance who thought that, when he e-filed a tax return, he also transmitted the T1135 information he had entered into his software. It turns out, however, that the information in the slip cannot be transmitted electronically, and so when the accountant later discovered his error and attempted to correct it by filing the T1135 in paper form (without prompting from the CRA), he received a nasty surprise in the form of a $2,400 penalty assessment. The accountant is now feverishly reviewing his files for other T1135 landmines.
Is it just me or are these penalties a bonanza for the fisc and a tiger trap for unsuspecting and honest taxpayers and their professional advisers?
I read your T1135 Madness. It appears many people i know are in the same position of ignorance about their foreign holdings being held with Canadian broker or those self help on line brokerage, and do not know that it is a requirement because one submits all the tax slips ( interest received or cap gains )with the returns on their foreign holdings .
What is the best way to avoid this draconian penalty if one starts to file this T1135 now when in the past has not done so.
thanks for your assistance.
I cannot provide legal advice through this blog I’m afraid. You’ll need to consult with a tax accountant or lawyer for an answer to your question.