Specified Foreign Property & Beneficial Ownership ' Form T1135

• Law Firm: SpenceDrake Tax Law
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Income Tax, Tax Authorities
• Author: Mr Cris Best
• Published date: 09 February 2023

According to a decision of the Ontario Superior Court of Justice in Csak v. Aumon, 1990 CanLII 8070 (ON SC), at paragraph 8, a "beneficial owner is one who is the real owner of property even though it is in someone else's name. The nominal owner has legal title to the property but the real owner can require the nominal owner to convey the property to him and transfer legal title to him..."

In Chan v. The Queen 2022 TCC 87 [Chan], the primary issue was the beneficial ownership of specified foreign property (a bank account allegedly containing illegally procured funds) and the respective obligation to report it on the appellant's tax return.

Was the Canada Revenue Agency ("CRA") correct in assuming that the appellant held a beneficial interest in the specified foreign property sufficient to establish that he had to report it to CRA and was liable for related penalties? The appellant claimed that he was not the beneficial owner for the respective years and that he reasonably believed same. Furthermore, he asserted that the reassessments were statute-barred as they did not take place within the normal reassessment period. For individual taxpayers, that is three years following the original assessment. However, appellant's counsel failed to plead the statute-barred issue.

Subject to certain conditions, Canadian taxpayers must report the ownership of specified foreign property to the CRA. This is accomplished by completing and filing Form T1135, Foreign Income Verification Statement ("T1135") with a tax return each year of ownership. Many taxpayers are not aware that the form is necessary and failure to file can result in substantial penalties (under certain circumstances, this can be rectified through the voluntary disclosure program.)

The T1135 is for specified foreign property costing above $100,000. To clarify, not the fair market value of the property but the cost to the taxpayer. Filing is mandatory pursuant to subsection 233.3(3) of the Income Tax Act, RSC 1985, c 1 (5th Supp) ("ITA"). As per subsection 162(7)(a), the initial penalty is $2500 for each year the taxpayer fails to complete and file a T1135. More specifically, $25 per day to a maximum of 100 days in a taxation year.

However, if CRA assumes that the failure to file was deliberate or on account of negligence, pursuant to ITA paragraph 162(10)(a) the additional penalty is $500 per month up to 24 months for a maximum of $12,000. Once the 24 months has passed there is a penalty of 5% of the cost...