2016-0669081E5 T1135 reporting

Principal Issues: Should the attribution rules be considered for the purpose of the specified foreign property reporting requirements in section 233.3?

Position: The reporting requirements under section 233.3 of the Act are independent of any determination with respect to the attribution rules.

Reasons: The legislation.

Author: Agarwal, Lata
Section: 233.3

XXXXXXXXXX                                                                                                  2016-066908
                                                                                                                          Lata Agarwal, CPA CMA, MBA
February 24, 2017

Dear XXXXXXXXXX:

Re: Specified foreign property reporting requirements

This letter is in response to your email dated September 29, 2016, in which you are seeking clarification regarding the reporting requirements with respect to specified foreign property pursuant to section 233.3 of the Income Tax Act (the “Act”).

Your email refers to our document 2015-061064 which commented on a situation where two spouses jointly acquired a specified foreign property with a cost amount of $150,000. In that situation, Mr. A contributes $75,000 cash and gifts $75,000 cash to Mrs. A towards the purchase of the specified foreign property. In that document, we opined that if there is joint ownership of a specified foreign property between spouses, we would compare each spouse’s share of the property to the $100,000 threshold and that each spouse’s share of the specified foreign property is generally based on the amount contributed by each person toward the cost of the purchase of the property.

In your email, you suggest that the attribution provisions of sections 74.1 and 74.2 apply to the situation described in document 2015-061064 such that Mrs. A’s share of any income or capital gains from the specified foreign property would attribute to Mr. A since he provided 100% of the funds to acquire the property. With this in mind, you have asked how each spouse should disclose the income and/or gains/losses with respect to the specified foreign property on their respective Form T1135, Foreign Income Verification Statement. You also ask how one reports the income and/or gains/losses with respect to specified foreign property on Form T1135 in a situation where a parent gifts cash to a minor child and they jointly acquire a specified foreign property. Furthermore, you ask whether Form T1135 should disclose the fact that the attribution provisions apply.

OUR COMMENTS

This technical interpretation provides general comments about the provisions of the Act and related legislation. 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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Pursuant to subsection 233.3(3) of the Act, a reporting entity for a taxation year or fiscal period, is required to file a return for the year or period in prescribed form (Form T1135) on or before the entity’s filing-due date for the year. A reporting entity for a taxation year or fiscal period is defined in subsection 233.3(1) of the Act as a “specified Canadian entity” for the year or period where at any time in the year or period, other than a time when the entity is non-resident, the total cost amount to the entity of specified foreign property exceeds $100,000. A specified Canadian entity for a taxation year is defined in subsection 233.3(1) of the Act to include a taxpayer resident in Canada in the year.

The term “specified foreign property” as defined in subsection 233.3(1) of the Act refers to property of a person or partnership, which, in our view, means property owned by the person or the partnership. Accordingly, for purposes of the specified foreign property reporting requirements under section 233.3 of the Act, a reporting entity would typically be the owner (including a beneficial owner) of the property whether such ownership is jointly with another person or otherwise.

You may wish to review the discussion on ownership in Income Tax Folio, S1-F3-C2, Principal Residence, which is available on the Canada Revenue Agency website link, http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f3/s1-f3-c2-eng.html.

In addition, it is our view that the reporting requirements under section 233.3 of the Act are independent of any determination and related income reporting requirements with respect to the attribution rules under Part I of the Act.

Accordingly, in the situations identified in your email, each reporting entity would report their ownership interest in specified foreign property (i.e., if the total cost amount of specified foreign property to the entity exceeds $100,000). Furthermore, the reporting entity would report their share of income and/or gains/losses with respect to specified foreign property on Form T1135, based on their ownership interest in the underlying property and without consideration given to the attribution rules.

We trust that these 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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