Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: 1. Is a taxpayer who owns a joint interest in a specified foreign property, but has not made any financial contribution towards the acquisition of such property required to report their interest in the property on Form T1135, Foreign Income Verification Statement? 2. For purposes of the reporting requirements in section 233.3 of the Act, in the case of joint ownership of specified foreign property, is the reporting entity the beneficial owner or does a strictly legal owner have a reporting obligation? 3. Do the income attribution rules under the Act have any bearing on how property interests are reported on Form T1135?
Position: 1. and 2. General comments provided. 3. The reporting requirements under section 233.3 of the Act are independent of any determination with respect to the attribution rules.
Reasons: 1. and 2. The determination of ownership of a property is a mixed question of fact and law. 3. Legislation.
CPA, CMA, MBA
December 9, 2016
Re: Specified foreign property - reporting requirements
This letter is in response to your email dated March 30, 2016, in which you are seeking clarification regarding the specified foreign property reporting requirements under section 233.3 of the Income Tax Act (the “Act’) where a property is jointly owned.
In your email, you have asked whether a taxpayer who owns a joint interest in a specified foreign property, but has not made any financial contribution towards the acquisition of such property is required to report their interest in the property on Form T1135, Foreign Income Verification Statement. Your email refers to examples such as spouses who place property in joint names without regard to who contributes financially, and parents who add children as joint owners of property for estate planning purposes. You also ask in the case of joint ownership of specified foreign property whether the taxpayer must be the beneficial owner of the property or would a strictly legal owner of the property have a reporting obligation. Finally, you ask whether the attribution rules have any bearing on how interests in the specified foreign property are reported on Form T1135.
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.
The Act does not define the term “owned”. In common law jurisdictions, two forms of property ownership are recognized - legal and beneficial. In the common law jurisdictions, “legal ownership” exists when title is transferred to, recorded in, registered in or otherwise carried in the name of a person. Legal owners are generally entitled to enforce their ownership rights against all other persons. By contrast, the term “beneficial ownership” is used to describe the type of ownership of a property by a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership. The determination of whether a person beneficially owns a particular property is a mixed question of law and fact that can only be determined after a review of all the facts and circumstances applicable to a particular situation. In most cases, the same person has both legal and beneficial ownership of a property. In this regard, 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.
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 and irrespective of the financial contribution made by the reporting entity towards the acquisition. In the case of joint ownership, each reporting entity would report their ownership interest in the specified foreign property (i.e., if the total cost amount of specified foreign property to the entity exceeds $100,000).
It is our view that the reporting requirements under section 233.3 of the Act are independent of any determination with respect to the attribution rules. Accordingly, the application of the attribution rules to income from certain property would have no bearing on whether that property represents “specified foreign property” to a particular taxpayer.
We trust that these comments will be of assistance.
Administrative Law Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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