Section 233.3

Subsection 233.3(1) - Definitions

Reporting Entity

Administrative Policy

24 February 2017 External T.I. 2016-0669081E5 - T1135 reporting

attribution rules disregarded

In 2015-0610641C6, two spouses jointly acquired a specified foreign property with a cost amount of $150,000, with Mr. A contributing $75,000 cash and gifting $75,000 cash to Mrs. A towards the purchase of the specified foreign property. CRA opined that as joint owners, there would be a comparison of each spouse’s share of the property to the $100,000 threshold and that each spouse’s share of the specified foreign property would generally be based on the respective amount contributed. How is this answer changed by the attribution rules? CRA responded:

[T]he reporting requirements under section 233.3… are independent of any determination and related income reporting requirements with respect to the attribution rules…..

Accordingly…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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 233.3 - Subsection 233.3(3) attribution rules ignored 65

Specified Canadian Entity

Administrative Policy

27 June 2016 External T.I. 2014-0532601E5 - Paragraph 94(3)(f) electing trust and form T1135

non-resident portion trust not a specified Canadian entity

S. 94(3)(f) provides for an election which effectively permits a (s. 94) deemed non-resident trust to elect to bifurcate itself into a “non-resident portion” trust (in broad-brush terms, holding property that has not been contributed by current or former residents of Canada) and the “particular trust” (holding the tainted property). CRA considered that neither of these two deemed subtrusts is required to report foreign property on T1135s provided that all the foreign property is held in the non-resident portion trust rather than the particular trust, stating:

A specified Canadian entity is defined by subsection 233.3(1) as a taxpayer resident in Canada with certain exceptions which are not applicable.. . Since the non-resident portion trust is not a deemed resident trust, it is not resident in Canada and is not a specified Canadian entity.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 94 - Subsection 94(3) - Paragraph 94(3)(f) no T1135 filing required by non-resident portion trust (or by particular trust if it has no foreign property) 156

13 March 2015 External T.I. 2014-0547721E5 - T1135 reporting for a trust

no T1135 for Trust with exempt beneficiaries

A trust whose sole beneficiaries are exempt under 149(1)(c) does not have to file a T1135 as per s. (a)(viii) of the definition of "specified Canadian entity."

19 July 2000 External T.I. 1999-000969 -

In a situation where a Canadian partnership held 99.99% of a US partnership which, in turn, held 99% of a second US partnership, the second US partnership would be the reporting entity because it is a partnership referred to in (b) of the definition of "specified Canadian entity", and the first US partnership would not be a reporting entity as it would not own any specified foreign property by virtue of the exception in (o) of the definition thereof.

Specified Foreign Property

Administrative Policy

9 December 2016 External T.I. 2016-0639481E5 - Specified foreign property-jointly held property

co-owners of specified foreign property have T1135 reporting obligations even if they did not contribute to its acquisition

Does a taxpayer with a joint interest in specified foreign property but who did not contribute to its acquisition, e.g., a child who was added as joint owner for estate planning purposes, have a reporting obligation? In the joint ownership case, must the taxpayer be the beneficial owner or would strictly legal ownership require reporting? Are the attribution rules germane? CRA responded:

The term “specified foreign property” as defined in subsection 233.3(1)… refers to property of a person or partnership, which…means property owned by the person or the partnership. …

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. … In most cases, the same person has both legal and beneficial ownership of a property. …[See] S1-F3-C2….

[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). …

[T]he application of the attribution rules… would have no bearing on whether that property represents “specified foreign property”….

Words and Phrases
property of
Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership "property of" a taxpayer applies to a beneficial (or legal?) co-owner who made no financial contribution 181

1 March 2016 Internal T.I. 2016-0631181I7 - Specified foreign property - mineral rights

mineral right is real property which is intangible property

After noting that 2014-0522241I7 indicated that a right to mine for minerals in a mineral resource outside Canada falls within s. (b)(ii) of “foreign resource property” in s. 248(1), that “for such mineral right to be considered specified foreign property, the right would have to be tangible property, which is understood to include real property such as land and rights issuing out of, annexed to and exercisable within or about land,” and that the mineral right would be considered a tangible property coming within s. (b) of 233.3(1) – “specified foreign property,” CRA stated:

We wish to clarify that a specified foreign property can include inter alia tangible or intangible property…., real property can include… intangible property…[and] a mineral right would likely be considered an intangible property. Therefore…a mineral right situated outside Canada would be considered a specified foreign property pursuant to paragraph (a)… .

5 October 2015 Internal T.I. 2014-0522241I7, rev'd supra - T1135: Mineral rights situated outside of Canada

foreign mineral right is tangible property

Is the right to mine minerals situated outside of Canada considered “real property” for T1135 reporting purposes, and if so how is the “cost amount” for such property determined? CRA responded:

The expression “tangible property… is understood to include real property, which generally refers to land and rights issuing out of, annexed to and exercisable within or about land (for example, a fee simple in land and a profit-à-prendre in respect of minerals). As such…the right… would be considered tangible property that is specified foreign property for purposes of section 233.3… .

…[T]he CRA has a longstanding position that the cost amount of foreign resource property is nil. Therefore, in determining whether a taxpayer is a reporting entity for T1135 purposes, the mineral rights have a cost amount of nil. However, in our view, if a taxpayer has sufficient other specified foreign property to exceed the $100,000 threshold, the CRA could require that a more useful amount be reported (for example, acquisition cost).

Words and Phrases
tangible property
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Cost Amount nil cost amount for foreign resource property 33

16 April 2015 External T.I. 2014-0561061E5 - Specified Foreign Property

digital currency holdings of a foreign partnership not used in active business (para. (j))

A Canadian corporation invests in a foreign partnership which, in turn, invests in digital currency (e.g. Bitcoins) and uses currency arbitrage/exchange and other trading methods to increase the net asset value of the fund in a foreign currency. Is the foreign partnership interest "specified foreign property"? CRA responded:

[D]igital currency would be funds or intangible property and would be specified foreign property of a person or partnership to the extent that it is situated, deposited or held outside of Canada and not used or held exclusively in the course of carrying on an active business. …

Based on the limited description…the digital currency would be held outside of Canada and would not be considered to be used or held exclusively in the course of carrying on an active business. As such, the digital currency would be specified foreign property… and the interest in the foreign partnership (to the extent the partnership is not a specified Canadian entity [under para. (o)]) would be specified foreign property of the Canadian corporation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 122.1 - Subsection 122.1(1) - Non-portfolio Property digital currency holdings of a foreign partnership not used in active business 71

12 May 2014 External T.I. 2014-0517021E5 - 233.3 - Definition of Specified Foreign Property

"interest in" non-resident does not include indirect shareholding

An individual ("Mr. X"), resident in Canada owns all the shares of Canco, having a cost amount higher than $100,000. Canco owns all the shares of Forco having a cost amount higher than $100,000. CRA stated:

[T]he shares of Forco would not be specified foreign properties of Mr. X, as Mr. X does not have an interest in, or a right in Forco. …[T]his expression does not apply to indirect shareholding. … However, the shares of Forco would be specified properties [sic] of Canco pursuant to paragraph (c) of the definition of specified property [in] subsection 233.3(1)… .

24 February 2014 Internal T.I. 2013-0484461I7 - specified foreign property

partner loan to partnership with joint and several partner liability

A Canadian resident makes a loan to a general partnership of which he is member and non-residents also are members. CRA stated that "the rule in paragraph 96(1)(a) of the Act deeming the partnership to be a person does not apply for the purpose of section 233.3. " However, under the foreign law under which the Partnership was formed and the provisions of the partnership agreement "the partners of the Partnership are jointly and severally liable for the debts incurred by the Partnership." Accordingly:

the Loan represents indebtedness owed to the (Canadian resident) by a non-resident person(s) and therefore constitutes "specified foreign property"…because… for the purposes of paragraph (g) of that definition, each of the partners would be considered to owe the full amount of the indebtedness incurred by the Partnership.

Paragraph (n)

Administrative Policy

12 April 2016 External T.I. 2015-0595461E5 - Australian Super Fund & T1135

Australian pension fund subject to 10%-15% tax rate not an exempt fund

An Australian Superannuation Fund is a trust that has been registered and approved by the Australian Government, is funded by compulsory and voluntary contributions from employers and individuals over their working lives, and provides retirement income to them. All investment earnings within the Super Fund are taxed at 15%, except for capital gains, which are given a 33% discount. The individual taxpayer has made no contributions to the Super Fund since moving to Canada. The Super Fund was assumed by CRA to be an employee benefit plan and a superannuation or pension plan or fund, and to not deemed to be resident in Canada by s. 94(3). Is the fund considered “specified foreign property,” or is it an “exempt trust”? CRA responded:

The relevant exclusions are:

…Paragraph (m) – if the interest in the non-resident trust was not acquired for consideration by the taxpayer, or certain other persons. The employee’s interest in the Super Fund does not meet this exception because the employee’s contributions to the Super Fund constitute “consideration” for the acquisition of the interest in the trust.

Paragraph (n) – if the trust is described in paragraph (a) or (b) of the definition of “exempt trust” in subsection 233.2(1)… .

Paragraph (a)… includes only certain U.S. individual retirement accounts (IRAs)… .

Paragraph (b) of the definition of “exempt trust” refers to, inter alia, trusts that are exempt from the payment of income tax in the country in which they are resident.

Since Super Funds are subject to income tax in Australia, they do not meet this exception.

…[T]he taxpayer must report the “cost amount” of the interest in the Super Fund on the T1135 if the total of all cost amounts of all specified foreign property exceeds $100,000. …

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Cost Amount - Paragraph (e) cost amount of pension rights includes future amounts to which legal entitlement 174
Tax Topics - Income Tax Act - Section 162 - Subsection 162(7) no penalty for reasonably estimating an unknown amount, e.g., the “cost amount” of a pension interest 164
Tax Topics - Income Tax Act - Section 233.2 - Subsection 233.2(1) - Exempt Trust Australian Superannuation Fund not an exempt trust due to taxability 103

Subsection 233.3(3) - Returns respecting foreign property

Administrative Policy

24 February 2017 External T.I. 2016-0669081E5 - T1135 reporting

attribution rules ignored

CRA considers that the attribution rules should be ignored for T1135 purposes so that, for example, an individual who received a spousal gift of the cash used to purchase her share of a specified foreign property would compute whether she was over the $100,000 cost amount threshold and report her share of the income on the form without regard to the application of the attribution rules.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 233.3 - Subsection 233.3(1) - Reporting Entity attribution rules disregarded 178

17 March 2015 External T.I. 2014-0529371E5 - T1135 reporting for emigrant

post-emigration property ignored

An individual emigrates July 1, 2013 owning shares of non-resident corporations (that are not foreign affiliates) with a total cost amount of $500,000. Is the maximum cost amount during the year on the Form T1135 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? Can the cost amount at year end be shown as zero? Must the individual report specified foreign property that was acquired after emigration but before the end of the taxation year on Form T1135? CRA responded:

While the Act technically allows for the CRA to require information on specified foreign property for the entire calendar year…the CRA will only require information relating to the period during which an individual was resident in Canada. Therefore, …the individual can complete the Form T1135 as if the taxation year ended on the date of emigration.

[T]he deemed disposition rules in subsection 128.1(4)…may apply upon emigration. In that case, the individual would report an end of year cost amount of nil… .

[S]ince the taxpayer will be completing the Form T1135 on the basis that the taxation year ended on the date of emigration, [post-emigration] transactions and properties will not be reportable.

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

21 August 2014 External T.I. 2014-0527611E5 - T1135 for Deceased Individual

nil cost amount at year end for deceased individual

An individual died on July 1, 2013, owning shares of non-resident corporations (that were not foreign affiliates) with a cost amount of $500,000. Should the cost amount at year-end be reported as nil? Should the maximum cost amount for the year be determined based on the period from January 1, 2013, to July 1, 2013, even though the taxation year of the deceased is the 2013 calendar year? CRA responded:

[Although] the reporting period is the calendar year…since the taxpayer is deemed to have disposed of the property immediately before death, the relevant period for determining the maximum cost amount for the year will be from January 1 until the date of death.

…Since the taxpayer disposed of the property on the date of death, the cost amount of the property held at year-end would be nil.

CRA, Revised Form T1135, Foreign Income Verification Statement 26 February 2014 [2013 transitional reporting method]:

[F]or the 2013 tax year only, the CRA will assist taxpayers to transition to the new requirements [for expanded reporting in the revised T1135] by permitting streamlined reporting for certain specified foreign property on Form T1135.

Specifically, a taxpayer who held specified foreign property in an account with a Canadian registered securities dealer (as defined in subsection 248(1)...) may now report the combined value of all such property at the end of the tax year, rather than reporting the details of each property. This combined value should be included in Category 6 of Form T1135, "Other property outside of Canada." If a taxpayer chooses to use the 2013 transitional reporting method, the taxpayer must use this reporting method for all accounts with Canadian registered securities dealers.

In addition, unit trusts (as defined in subsection 108(2)...) now have the option to report the combined value of all of their specified foreign property in the same manner for their 2013 tax year.

The CRA is also extending the filing deadline for Form T1135 for the 2013 tax year to July 31, 2014, for all taxpayers... .

See revised Form T1135.

10 June 2013 STEP Roundtable, 2013-0485761C6 - 2013 STEP CRA Roundtable Question 3

The extension of the normal reassessment period under draft s. 152(4)(b.2) - where (a) there has been a failure to file the T1135 as and when required or to provide therein the required information in respect of a specified foreign property, and (b) to to report an amount, in respect of a specified foreign property, that is required to be included in the taxpayer's income - applies for all purposes and not just to income derived from the unreported foreign assets.

U.S. shares or U.S. bonds held in a U.K. brokerage account should be coded as U.S. as "it is the residence of the corporation that issued the shares or the residence of the bond issuer that is relevant… ." Where there are gains and Canadian losses, only the foreign gains are reported on the T1135.

Articles

Maureen Vance, "T1135 – The Saga Continues", Tax Topics, Wolters Kluwer, Number 2248, April 9, 2015, p. 1.

Difficulties in preparing T1135s with brokerage-provided information (p. 2)

Investment dealers have made considerable efforts to put systems in place to provide the information needed to complete the T1135, which was particularly challenging considering that the requirement to segregate investments on a country-by-country basis only became known when the revised form was issued last summer. However, tax preparers may find that the availability and quality of this information will vary greatly from one dealer to another, as well as between types of accounts. For example, very little (if any) information appears to have been provided for taxpayers using many of the popular discount brokerage accounts. Even where there is information available, you may have to double-check to ensure that the properties have been properly classified. For example, brokerage statements often classify Canadian mutual funds with foreign investments as "Foreign Property" for purposes of asset allocation. However, Canadian mutual funds are not specified foreign property and are not to be reported on the T1135. Similarly, the brokerage statement may classify a property such as a foreign mutual fund or an exchange-traded fund ("ETF"] according to the location of the investments rather than the location of the issuer of the mutual fund or ETF.

Forms

T1135, Foreign Income Verification Statement: As indicated in a news release on the CRA website dated 26 June 2013, the CRA is instituting stronger reporting requirements in T1135 "to crack down on those who attempt to cheat the system." CRA stated:

Starting with the 2013 taxation year, Canadians who hold foreign property with a cost of over $100,000 will be required to provide additional information to the Canada Revenue Agency (CRA). The criteria for those who must file a Foreign Income Verification Statement (Form T1135) has not changed; however, the new form has been revised to include more detailed information on foreign property.

Increased reporting requirements include:

  • the name of the specific foreign institution or other entity holding funds outside Canada;
  • the specific country to which the foreign property relates; and
  • the income generated from the foreign property.

The CRA will use the additional information to ensure all taxpayers comply with Canadian tax laws, through activities including education and audit.

(CRA has indicated, however, that it will accept old T1135 forms filed for taxation years ending no later than 30 June 2013.)