2014-0529371E5 T1135 reporting for emigrant

Principal Issues: Do individuals who emigrate during the year have to complete the T1135 based on the calendar year or on the period up to the date of emigration?

Position: Individuals emigrating report on specified foreign property up to the date of emigration.

Reasons: Administrative position by Compliance Programs Branch

Author: Deak, Andrew
Section: 233.3

XXXXXXXXXX                                                                                                                                     2014-052937
                                                                                                                                                             Andrew Deak

March 17, 2015

Dear XXXXXXXXXX:

Subject: T1135 reporting obligations for an emigrating individual

We are writing in reply to your email of April 28, 2014, concerning the foreign reporting requirements under the Income Tax Act (the “Act”) for an individual who has emigrated from Canada. We apologize for the delay in responding to your email.

In the scenario you presented, an individual emigrates July 1, 2013 owning specified foreign property with a total cost amount of $500,000, consisting of shares of non-resident corporations (that are not foreign affiliates). First, you asked whether the cost amount at year end can be shown as zero on the Form T1135, Foreign Income Verification Statement. You suggested that the information is no longer relevant because after emigration the individual is a non-resident of Canada.

Second, you asked us whether or not the individual must report specified foreign property that was acquired after emigration but before the end of the taxation year. You also asked whether the maximum cost amount during the year on the Form T1135 is determined by looking at the cost amount to the emigrant from January 1, 2013 to July 1, 2013, even though the taxation year of the emigrant is the 2013 calendar year.

Finally, you asked where the transitional method applies or not. You indicated that because at December 31, 2013 the individual is no longer resident in Canada, perhaps the transitional method does not apply.

Our Comments

This technical interpretation provides general comments about the provisions of the Act. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations. Subsection 233.3(3) of the Act requires a “reporting entity” to file a return in prescribed form (Form T1135 Foreign Income Verification Statement) by that person’s normal tax return filing deadline under Part I of the Act. Subsection 233.3(1) defines a “reporting entity” to be a “specified Canadian entity” whose total cost amount of “specified foreign property” exceeds $100,000. The term “specified Canadian entity” is defined in subsection 233.3(1) as a taxpayer resident in Canada in the year that is not specifically excluded in the provision; thus, an individual who is resident in Canada in the year is a “specified Canadian entity”.

While the Act technically allows for the CRA to require information on specified foreign property for the entire calendar year, we have confirmed with the Compliance Programs Branch that the CRA will only require information relating to the period during which an individual was resident in Canada. Therefore, for an individual who emigrates during the year, the individual can complete the Form T1135 as if the taxation year ended on the date of emigration.

It should be noted that the deemed disposition rules in subsection 128.1 of the Act may apply upon emigration. In that case, the individual would report an end of year cost amount of nil for those particular properties on their Form T1135, since the property would have been deemed to have been disposed of immediately prior to emigration. For more information on deemed dispositions upon emigration, please see http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/dspstn-eng.html

In answer to your second question on reporting obligations vis-à-vis specified foreign property that was acquired after emigration, since the taxpayer will be completing the Form T1135 on the basis that the taxation year ended on the date of emigration, these transactions and properties will not be reportable. 

The transitional method still applies to an individual who emigrates in 2013.

We trust our comments will be of assistance.

Yours truly,

Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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