T1135s, Beneficial Ownership Of Property, And Chan V The Queen: A Canadian Tax Lawyer's Case Comment

• Published date: 15 August 2022
• Subject Matter: Tax, Income Tax, Tax Authorities
• Law Firm: Rotfleisch & Samulovitch P.C.
• Author: Mr David Rotfleisch

Introduction - T1135s and Beneficial Ownership

The Canadian Income Tax Act requires that Canadian tax residents who own "specified foreign property" with a cost of $100,000 or more in Canadian dollars file an annual Foreign Income Verification Statement, or "T1135", with that year's tax return.

Specified foreign property as defined under the Income Tax Act includes, among other kinds of investment and passive income-earning properties, funds "situated, deposited or held outside Canada", or any interest in or right to property that is specified foreign property. Thus, a taxpayer who holds beneficial ownership of specified foreign property (as opposed to purely legal title to property) generally must include that property's value in calculating the threshold for filing a T1135 and must report that property when filing that T1135.

One recent case heard by the Tax Court of Canada, Chan v The Queen, 2022 TCC 87, illustrates the potential challenges in determining what might qualify as specified foreign property, and the serious consequences a taxpayer might face for failing to file a T1135 when required. If you are ever in doubt about your potential T1135 filing obligations as a Canadian tax resident, you should consult with one of our expert Canadian tax lawyers.

Facts of the Case - A Father and Son Set Up a Foreign Bank Account

The taxpayer was a former financial analyst and treasury manager with extensive education in accounting. In 2011, the taxpayer opened a foreign bank account for his father in China under his own name. The taxpayer claimed that political restrictions in China on the taxpayer's father prevented him from opening an account himself. The taxpayer and his father took a number of steps to provide the taxpayer's father with control of the account:

• The taxpayer signed a power of attorney over the account in favour of his father, giving him online access to the account.
• The taxpayer's father exclusively held the bank card and PIN associated with the account to access it. The taxpayer was only involved in accessing the account when the taxpayer's father needed technical assistance.
• The taxpayer's father held all bank statements related to the account.
• The taxpayer's father used the account for account transactions and personal investments. The taxpayer held his personal investments in other accounts, and generally engaged in more high-risk investment strategies than the conservative investments the taxpayer's father made using the account's...