2015-0614371E5 Specified foreign property - Form T1135

Principal Issues: Whether certain property described is “specified foreign property” for purposes of the Form T1135 reporting requirements.

Position: General comments provided.

Reasons: Section 233.3 of the Act provides reporting requirements in respect of “specified foreign property”, as defined in subsection 233.3(1) of the Act. Specified foreign property does not include personal-use property. Personal-use property is defined in section 54 of the Act to include property owned by the taxpayer that is used primarily for the personal use or enjoyment of the taxpayer or a person related to the taxpayer. Whether a particular property is primarily for personal use and enjoyment is a question of fact that is determined on a case-by-case basis.

Author: Ouimet, Jennifer
Section: ITA: 233.3, 54

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                                                                                                                  2015-061437
                                                                                                                  J. Ouimet, CPA, CA
April 13, 2016

Dear XXXXXXXXXX:

Subject: Form T1135 - Specified foreign property

This is in response to your letter of July 6, 2015, requesting clarification on whether certain property is considered “specified foreign property” under subsection 233.3(1) of the Income Tax Act (“the Act”) and therefore reported on Form T1135, Foreign Income Verification Statement (“Form T1135”). We apologize for the delay in responding to your correspondence.

Specifically you ask whether the following properties would be considered “specified foreign property” assuming the total cost amount of such property exceeds $100,000 during the year: 

1.    A property you describe as a private home situated outside Canada, where you reside when on vacation and where your mother resides permanently free of charge.

2.    A property you describe as a small co-owned apartment situated outside Canada that is unoccupied and where you do not reside at any time during the year. 

3.    Household furniture, household electronics and equipment owned and located in the private home described in #1 above.

4.    You advise that you hold an interest in a mutual fund (“Mutual Fund #1”). Based on our understanding of the information for Mutual Fund #1, the fund is a unit trust established in Canada and qualifies as a mutual fund trust under the Act. Moreover, you indicate that you receive a T3, Statement of Trust Income Allocations and Designations with respect to Mutual Fund #1.

You also advise that an interest in a second mutual fund (“Mutual Fund #2”) is held by a trust governed by a registered retirement savings plan (“RRSP”) to which you are an annuitant. Based on our understanding of the information for Mutual Fund #2, the fund is a unit trust established in Canada and qualifies as a mutual fund trust under the Act.

5.    You also describe that you hold a U.S. dollar account and a Euro account that are deposits with a financial institution resident in Canada.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax 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 706R6, Advance Income Tax Rulings. 

In general terms, a reporting entity, which is defined in the Act as a “specified Canadian entity”, is required to report “specified foreign property” on Form T1135 where the total cost amount of all such property exceeds $100,000. A “specified Canadian entity” is defined in subsection 233.3(1) of the Act to generally mean a taxpayer resident in Canada as well as certain partnerships. However, the definition of specified Canadian entity excludes, among other things, 

*    a mutual fund corporation, 
*    a person or trust that is exempt from Part I tax, 
*    a mutual fund trust, or
*    certain trusts such as a trust governed by an RRSP, RRIF, RESP or TFSA. 

A “specified foreign property” of a person or partnership is defined in subsection 233.3(1) of the Act to generally mean any property of the person or the partnership that is, among other things,

*    funds or intangible property which are situated, deposited or held outside Canada, 
*    tangible property situated outside Canada, 
*    a share of the capital stock of non-resident corporations, and
*    an interest in a non-resident trust.

However, in general terms, the definition of specified foreign property excludes certain property of a person or a partnership where the property is, among other things,

*    exclusively used or held in the course of carrying on an active business; or
*    personal-use property.

Personal-use property is defined in section 54 of the Act to include property owned by a taxpayer that is used primarily for the personal use or enjoyment of the taxpayer or for the personal use or enjoyment of one or more individuals each of whom is the taxpayer or a person related to the taxpayer. Personal-use property would generally include personal and household items, such as furniture, automobiles, boats, a cottage, and other similar properties. Whether a particular property is used primarily for the personal use and enjoyment of a taxpayer (or related person) is a question of fact that is determined on a case-by-case basis. If a property is considered a personal-use property, it is not a specified foreign property and would be excluded from the reporting requirements of Form T1135.

Based on our understanding of the properties described to us, it is our view that the following properties would not be reported on Form T1135 for the reasons described: 

1.    The private home and the household furniture, electronics and equipment located in the private home appear to be personal-use property.

2.    The interest you hold in Mutual Fund # 1 is in respect of a mutual fund trust resident in Canada. 

3.    The interest in Mutual Fund #2 is held by a trust governed by an RRSP, which is not a specified Canadian entity. Property held by a trust governed by an RRSP is not subject to the T1135 reporting requirements. 

4.    The U.S. dollar and Euro accounts are considered properties held or deposited in Canada.

A vacant property, such as land or an unoccupied building situated outside Canada may be considered specified foreign property as defined under subsection 233.3(1) of the Act if it is not part of the exceptions described in that definition. In this regard, the apartment you co-own may be a specified foreign property if it is determined that the apartment is not property that is used or held exclusively in the course of carrying on an active business or a personal-use property. As stated earlier, such a determination is a question of fact.

The 2015 Federal Budget announced a measure to simplify the foreign asset reporting system for taxation years that begin after 2014. For more information on completing Form T1135, including the new streamlined foreign reporting system, please consult the following website link: http://www.cra-arc.gc.ca/E/pbg/tf/t1135/.

We trust our comments will be of assistance.

Yours truly,

Bob Naufal
Manager 
Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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