In case you file your tax return late, you’ll usually solely face a penalty if there may be an quantity owing in your return. However, in the event you occur to personal sure overseas property , you could be hit with a late-filing penalty from the Canada Income Company for merely failing to file Type T1135 , the Overseas Revenue Verification Assertion, on time.
This kind is required in the event you personal “specified overseas property” the place the whole price quantity of all such property, at any time within the yr, was greater than $100,000. Overseas property consists of such property as a U.S. checking account, in addition to shares of overseas companies if held in a non-registered account. Private use property, comparable to a Miami trip rental, is excluded, as are any property held in registered accounts.
The penalty for failing to file the shape on time is $25 per day, to a most of $2,500, plus arrears curiosity. In case you’re assessed a penalty, you’ll be able to write to the CRA requesting aid when occasions “past your management” stop you from submitting on time. If the CRA denies your request for aid, you’ll be able to then take the matter to federal courtroom the place a decide will resolve whether or not the CRA officer’s choice to disclaim aid was affordable.
A July 2026 federal courtroom choice handled a pair who confronted penalties for failing to file their 2021 T1135s on time. They claimed the delay was the results of their reliance “on deceptive and incomplete data from the CRA.”
The taxpayer owns industrial property within the U.S. by numerous restricted legal responsibility partnerships from which he earns rental revenue. His spouse additionally has investments within the U.S.
In 2020, the taxpayer offered considered one of his properties, which resulted in a capital acquire. Whereas making ready his 2020 tax return, his accountant calculated the capital acquire on the sale, however the taxpayer believed the estimate was “considerably inflated.” To keep away from penalties and curiosity for late-filing their returns, the taxpayer and his partner however filed their 2020 revenue tax returns based mostly on the upper determine, counting on the accountant’s assurance that they may alter their 2020 returns later to replicate the right capital acquire.
And, in April 2022, that’s precisely what the taxpayer did, submitting a T1 Adjustment Request for the 2020 tax yr that diminished his capital acquire. Consequently, this allowed the taxpayer to decrease his 2020 RRSP deduction, thereby releasing up unused RRSP contribution room to hold ahead and deduct in 2021.
Later that month, the taxpayer reached out to the CRA to verify the standing of his 2020 adjustment. As his 2020 reassessment was nonetheless pending, he was suggested by a CRA agent merely to submit his 2021 tax return on time with out claiming the newly freed-up RRSP carryforward room, which might not but be mirrored within the CRA’s programs. He was then informed that when he acquired each the 2020 and 2021 notices of (re)evaluation, he may file a brand new adjustment request for the 2021 tax yr, amending his RRSP deduction declare.
Hoping to keep away from submitting one other adjustment request for 2021, the taxpayer determined that he would as a substitute await his 2020 reassessment, and easily file the couple’s 2021 returns late. He reached out to the CRA and requested in regards to the penalties of late-filing, and was informed by a CRA agent that “penalties are charged in the event you file your return late and have a steadiness owing.”
In consequence, the April 30, 2022, tax submitting deadline got here and went, and the taxpayer hadn’t but filed his or his spouse’s 2021 returns. April 30 was additionally the deadline for submitting their T1135 kinds to report possession of overseas property.
In July 2022 the taxpayer acquired his 2020 discover of reassessment and in mid-December 2022, almost eight months after the April 30 deadline, the taxpayer and his spouse filed their 2021 returns, together with their T1135 kinds. Neither owed taxes for 2021 and each acquired refunds.
In January 2023, the CRA issued notices of evaluation for the 2021 tax yr, and assessed a penalty of $2,500 to every of them, plus arrears curiosity, for late-filing their T1135s.
The taxpayer wrote to the CRA asking for penalty aid, however was denied. He requested a second-level assessment, noting that he had particularly requested the CRA about late-filing penalties and “was assured that until I owe tax, there can be no penalty.” He asserted that “the CRA web site and the Federal Revenue Tax and Profit Information are deceiving” as a result of the Penalties part solely states that CRA could cost a penalty in the event you “1) file your return late and owe tax, 2) didn’t report an quantity, or 3) made a false assertion or omission.” None of those causes utilized to his state of affairs.
He additional argued that the truth that a particular type can have its personal separate penalty is “not ‘basic data’ however slightly particular data.” He concluded that the “CRA has made it just about unimaginable to change into conscious of that reality until you already know that particular kinds could incur a penalty and particularly lookup the shape.”
In July 2024, the second-level CRA agent denied the taxpayer’s request for aid. Because the agent wrote, “Oversight, lack of expertise, or unintentional error aren’t thought-about circumstances past a taxpayer’s management.”
The taxpayer determined to take the matter to courtroom, looking for a judicial assessment by a federal courtroom decide, whose position it’s to find out whether or not the CRA officer’s choice to not grant aid was affordable.
The taxpayer relied on two fundamental arguments: that he was misled by the knowledge acquired from a CRA agent and that the knowledge accessible on the CRA web site made it “just about unimaginable” to know if there was a particular penalty for the late submitting of Type T1135.
In courtroom, the taxpayer acknowledged that in his telephone name with the CRA about penalties, he didn’t point out type T1135 and solely requested if there can be a penalty if he waited for the results of his 2020 T1 adjustment request and filed his 2021 tax return late in order to make use of the right RRSP deduction quantity.
As for the taxpayer’s declare that the T1135 penalty data was not “available” on the CRA’s web site, the taxpayer was alluding to the truth that he would have needed to click on by a number of hyperlinks to search out the related data.
The decide discovered the taxpayer’s arguments unpersuasive and concluded that the CRA officer’s choice to not grant aid was, certainly, affordable, dismissing the taxpayer’s case.
Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto. Jamie.Golombek@cibc.com .
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