Didn't report worldwide income/declare foreign assets

[moscatojuices]

Hi everyone,

I’m facing a massive $2,500+ fine for late filing of Form T1135 in 2021, which requires disclosure of specified foreign property purchased for a total cost amount of more than $100,000.

I also didn’t declare all my worldwide income in the 2021 year, which mainly comprises freelance income from my UK clients, rent from UK property, dividends from UK stocks etc.

I hate blaming other people, but the main reason is that I had no idea I needed to do this. My Canadian partner referred me to an idiot accountant who for some reason only told me that I needed to disclose the UK business income, but not the other UK income (dividends, rent etc.) despite me being upfront with all my tax affairs/UK assets. So in my 2021 return, he put only my Canadian income and UK business income - not all my freaking income.

In the process of trying to fix this up by amending my tax return, I have now discovered the need to fill Form T1135. I calculated that my cost amount for my specified foreign assets in 2021 was about C$120,000. It certainly worries me when CRA threaten you with wording like “there are substantial penalties for failing to complete and file Form T1135 accurately and by the due date.”

I paid all my UK taxes on my UK income to the very last cent – so I haven’t evaded tax, I just didn’t know that I needed to declare all of it to Canada partly due to poor advice.

Any ideas on how to deal with this?

In terms of dates, I landed in Canada in October 2020 on an IEC visa and I don’t have PR yet.

 

[moscatojuices]

So, has the CRA imposed the fine yet, or just threatened? You might be able to eliminate/reduce the fine by showing you relied on a professional to complete your return and they knew or ought to have known about the T1135 requirement. Of course, the official CRA position is that you are the one, in the end, responsible for your return, but they have some discretion.

My guess is that the consequences of your lack of T1135 filing is the only real problem here. You may owe little or nothing in the way of additional tax. Again, a guess, but that guess is that you own a UK rental property. So, you paid UK tax on the net income. A further guess (easy to check out) is that there is a tax treaty between the UK and Canada to avoid double taxation. So, you should receive a Canadian tax credit for tax paid to the UK. You will need to file an amended return, reporting all of the UK income, but doing so might not result in any additional tax being due to Canada. I would expect Canada tax to be payable only if the income would be subject to a higher rate of tax in Canada. If, for example, the UK says you must pay 20% tax on your UK income and Canada says your rate is 30%, Canada would charge the additional 10%, after giving credit for the 20% UK tax paid. That's not exactly how it works. I have simplified it for the purposes of illustration.

If you feel comfortable dealing with all of this on your own, then do so. But it might be worth spending a bit on the services of a Canadian tax specialist - lawyer or professional accountant - especially one familiar with the tax regimes of both the UK and Canada.

Thank you for your response.

• No, the CRA is unaware of this matter. I am the one one who came across the worldwide income obligation inadvertently when I was doing research about TFSAs
• When I asked my accountant to fix up my tax return to include all my UK income as well, he then sent me an amended form. Worryingly, the freaking idiot ticked "YES" that I'm a Canadian citizen in an Elections Canada insert (I don't even have PR....) with a footnote at the end of that form about T1135. That's when I panicked this guy has lost his marbles and isn't very good at his job and needs to be fired
• I have basically already declared most of my income from the UK, which is business income, on my 2021 CRA return. If we assume my total income from UK being $15k, $10k has already been reported, its just the $5k we need to add in from rent, dividends etc. All of this income I have stated here in this bullet point has already been taxed by the UK.

The thing I'm uncomfortable dealing with is the CRA. They seem to take an approach was is very threatening and punitive, and it seems they're happy to drag you to court. I mean, look at this: https://www.rktaxlaw.com/t1135-discretionary-penalties/

When I call them anonymously, they want to talk more about fining me than helping me fix it. "Oh yeah bud, yeah, T1135 eh? Big penalties waiting for ya bud."

In the UK if you make an honest mistake, you can count on them to be reasonable and waive any penalties. All it takes is an email and the Commissioner replies with "no worries mate, it happens."

So I'm at a loss of how to go about this. Do I write a letter to Winnipeg and explain that I made an honest mistake and hope for the best? Do I apply under the Voluntary Disclosure Program which is meant for tax cheats of the highest regard? The paperwork in the latter is insane and overwhelming.

Or do I just file my T1135 now and pay up? I'm so intimidated and I figure that's how they want me to feel.

 

[moscatojuices]

Given that the CRA has not yet caught on to your transgression, you gain points by coming clean. I would probably write to the relevant tax office (for me, it would be Surrey, sounds like Winnipeg for you). In the letter I would say that you are new here, you relied on an accountant who apparently gave inadequate/negligent advice, you have now learned about the T1135 and it's filed herewith and you are asking for your return to be reassessed and you will pay any taxes owing. Point out that all of the income was reported and taxed in the UK and you believe you are entitled to a tax credit for income tax paid there. You will need to show proof of payment.

I agree that having resort to the Voluntary Disclosure Program is not appropriate here. It's an admission of guilt, given in hope of avoiding punishment. Your case is different. You did not set out to evade taxes and are now fearing the consequences. Rather, you set out to file an accurate return, but it appears that your reliance on an accountant was misplaced.

Thanks so much - it's just that I was reading a whole lot of stuff including by CPA Canada (see: https://www.cpacanada.ca/~/media/site/operational/tx-taxation/docs/01031-tx_20160425 t1135 cpa canada webinar questions update.pdf?la=en) and the default scenario to avoid late filing penalties seems to be VDP as a mere standard late filing even with a letter still triggers automatic penalties.

But I agree with you, I don't think I should launch into VDP straight away. I will first call CRA to confirm my options and would prefer to just send a letter.

The other option quite frankly is to do nothing. I mean, 40 million people in this country. 400k+ immigrants each year. You cannot serious that everyone is an ultra transparent human disclosing their $100k+ worth of Bitcoin, 2BHK Mumbai/Filipino apartments now being rented out or sold after they immigrated to Canada, or remembering about their employer-sponsored stock plans or the GIC they invested in 7 years ago and forgot is now valued at more than $100k.

Just trying to figure out if this is more trouble than it's worth at the same time.

 

[moscatojuices]

True, simply hiding in the weeds might mean that nothing will happen...for now. For myself, I think I would prefer to sort it out now. Let's suppose you continue to rent a UK premises for the next 10 years, never filing a T1135 or reporting the rental income to Canada. It could get real ugly should the CRA then get wind of it. It would then be difficult to plead ignorance. I know that Canada and USA exchange taxpayer info. If Canada and UK compare notes from time to time, it could lead to difficulty.

I appreciate bouncing ideas off you.

My other thought was simply letting the 2021 disclosure slip and then disclosing from 2022 onwards. I just can't fathom how the UK and Canada tax offices would compare notes and gain access to data from banks or get hold of my real estate purchase contract to be able to get the costings.

But then my conscience will keep haunting me .

 

[moscatojuices]

Again, I agree they are unlikely to get all details about the RE purchase, etc. But if you reported RE rental income in UK, THAT might be found out by the CRA, then they will start asking questions.

I also agree that 2021 tax year is now in the rear view mirror. You are probably safe to disclose from 2022 onwards. Unlikely they will ask questions about 2021 and, if they do, blame any shortcoming on your paid tax expert. Or "take the fifth". Or plead insanity. In short, duck and weave and deny, deny, deny.

Called CRA this morning and these guys are absolutely merciless.

Me: "Hello. I wasn't aware of Form T1135 in my 2021 return. How can I file this without attracting penalties?"

Agent: "You have to pay. It was your responsibility to know what forms you needed to complete."

Me: "The accountant who I paid didn't tell me. You never welcomed me at the airport with a T1135 and newcomer disclosure obligations, so how was I reasonably supposed to know?"

Agent: "Well that's the job of your accountant to tell you."

Me: "I am 110% certain that you have received bad advice from a professional in your life, have you not?"

Agent: "Uhhhhhhh.... ummmmm.... yes I have. I suppose you could argue that."

He suggested I write a letter to Winnipeg, attach it to a VDP form, and it may take 2 years to process. If they don't accept my application, then I'll get penalties with about 8% annual interest compounded daily for the pleasure of waiting.

With a tax office that friendly and collaborative, who wouldn't want to come forward and fess up to honest mistakes? Oops I now live in Canada, where people are perfect and there are no room for mistakes. I can know see why major corporations and wealthy individuals play hardball when it comes to tax. It's either screw them hard or they will screw you hard. Never thought I'd see it from the other way.

I also went through my email history with my accountant. Holy crap:

• He actually encouraged me to leave out my worldwide income. He also claimed to "do research" showing that I don't need to declare my property income to the CRA. WTF! So he basically told me to non-disclose, and then never told me about the T1135.

I am at such a loss of what to do here. I don't think this mine or the CRA's fault, its my accountant's!!!

 

[moscatojuices]

A very sad, but unsurprising, story. The CRA seems to enjoy meting out punishment. In brief compass, they are dangerous. At the front lines, they have no mercy, as you point out. If you file a Notice of Objection to an assessment, you can make a submission to an appeals officer and they have some discretion.

I was never any kind of a tax lawyer, but last year I took on a tax appeal for a friend of a friend. I prepared a long and well-researched submission. The appeal was allowed and it save the guy quite a bit...about $100k. His accountant had written and tried, with no luck. She loved my submission, but I told her it would have to go out over her signature or that of her client. I did not want my name on it. I feared reprisal in the form of annual audits of my own returns for having the temerity for challenging the mighty CRA. Not that I have anything to hide on an audit. In general, I usually take fewer and smaller deductions than would might be allowed. But I really do not want a vindictive CRA subjecting all future returns to microscopic scrutiny. They might issue bogus reassessments just to force me to have to go through the hassles of appeals.

So now, what do you do? My money is on doing nothing. As we have set out, letting it slip for a year will probably not bring the house down. The CRA is making it clear that, if you try to correct the error now, you'll feel the lash.

Another idea is the wake the sleeping dog, allow the chips to fall where they may, and seek to recover from your accountant. Do you know this person's professional credentials, if any? They might belong to a body that requires them to carry liability insurance. Not that it matters, they can be liable for damages for professional negligence, insured or not. If not insured, you will have to collect from them personally. Probably not too difficult. From what you have described, this appears to be quite a clear case of professional negligence. I expect we are not talking large sums here, so you could represent yourself in a small claims proceeding. It's not gonna' be a case in which it would make sense to incur legal fees at $400/hr.

I could maybe come up with more ideas, but time to get back to work. It's late Monday morning in my part of the world.

Hi Kabigan, thank you so much for your response, I really appreciate it.

Yes, you are spot on with the CRA. The reason I fell in love with Canada in the first place is because Canadians are friendly, polite, understanding - yet somehow this black box beast is the antithesis of all those values I admire and creates quite the dichotomy - friendly people, abusive government.

Wow - yes just goes to show you that no matter which professional you're dealing with - a doctor, lawyer, immigration lawyer, if you're curious as we are about law and are able to craft a well-prepared submission, you can do better than these so called "experts".

I have the following options:

1. Do nothing at all (two versions) - do not amend my tax return declaring the full extent of my global income. Do not file form T1135. Let it slip under the radar (probably a 90%+ chance nothing will happen). OR amend my tax return declaring the full extent of global income, but let the T1135 slide.
2. Let the accountant deal with it (my parents' suggestion) - He's the one who got me in this mess and he should be the one to deal with the CRA with regard to fixing all these mistakes. My dad rightly asked: "Why are you feeling responsible for this? It was his negligence"
3. Coerce my accountant to admit negligence to the CRA - I could ask my accountant to file the amended return, file the T1135 and write a letter to Winnipeg that he signs that it was because of his advice the worldwide income wasn't properly declared and T1135 filed late. A long shot he'd do that but could ask.
4. Pay up, get it out of my mind and hope - File the amended return, file the T1135, pay the $2,500+ penalty and send a letter to Winnipeg seeking a waiver of penalties. If that fails, take my accountant to court in a civil case for gross negligence. As you said, this would be a small claims case.

The sad risk is that doing nothing could come bite me down the track, but how hard given it was one missed filing and not a pattern? But doing something could also bite me hard if CRA put me on a high-risk watchlist and dissect my future tax returns.

For the first time I've had thoughts about pulling my PR application and going home. I don't get paid enough in Canada or get given enough vacation time for this shit lol.

 

[moscatojuices]

So I subtly asked the accountant tonight: "Since I didn't know about this form, how do you propose dealing with this situation?"

His response: "If they fine you, you have no choice but to pay." Didn't even bother mentioning anything about VDP or the waiver form. I literally know more about Canadian taxation than this guy.

this is turning out to be one of those "life is very unfair" moments where the honest, competent person tries to fairly fix the issue but faces consequences in doing so, and the incompetent, lying person is dusting their hands off and walking away (or trying to) without consequence.

 

[moscatojuices]

So, of your 4 options, do you have a leaning towards any one of them at present? I am a bit inclined to #1 or #2 (parents' suggestion). But then, it's not my ox that's being gored.

And you are spot on about abusive government. The CRA and the IRCC are, in my view, in the same league. In some ways, the latter is worse. As one federal MP put it to be long ago, they are a law unto themselves, they answer to no one and make and interpret the rules how they like. We must simply accept.

My own situation I don't often mention here, because no one can really offer advice and I cannot base any advice to others upon it. We applied beginning 2020 (just before covid) for a TRV for my wife. Denied. I was unable to return to her country for 2 years due to covid. Went back in February as soon as it opened. Applied again for TRV. Denied again.

The denials are infuriating. As a lawyer who worked for 20 years in the field of administrative law, who sat as a decision-maker on several tribunals, who acted as counsel for several tribunals on judicial review applications, etc., I am appalled at how the IRCC operates and the fact everyone (on this forum at least) seems to think it’s just fine.

Take the TRV applications. The first one was decided in a few days - so quickly, I doubt that much, if any, of the supporting material was read. The second time the denial came on day 110, after submitting at a time when 34 days was said to be average time. Both times generated identical form letters. Just setting out some statutory provisions. Both letters unsigned. Stripped to their essentials, the letters say, in effect: You and your (now) wife are liars. You say she’ll return to her home country at the end of her stay, but we know she won’t. We know she would much prefer to go into hiding in Canada, to live illegally, in the shadows, forever. She’ll be happy hiding out here, unable to work legally, unable to obtain provincial healthcare coverage, unable to build credit for such things as CPP or OAS.

So, we followed the stock advice and ordered the GCMS notes. What a waste. They contained nothing beyond what was in the form letters. But, I thought maybe I just don’t know how to read the 40-odd pages of crap we received, so I paid a well-regarded immigration lawyer $500 to read ‘em and show me where the nuggets were buried. The lawyer found nothing.

I learned that an administrative decision-maker should give adequate reasons, written reasons should be signed and credibility findings should not be made in the absence of an oral hearing. I had requested that consideration in the TRV applications. I said that if there was any question, both of us would be happy to show up at any time at any IRCC location in the world, to be interviewed, separately or together. Nope, they did not want to be confronted with the truth.

As a last resort, on my last visit before the present, we got married. Took 7 months to get the documents needed to apply for her permanent residence as my spouse. No such thing as being able to get a TRV to even check out if she would like to live in Canada at all. Not assured that she will. Why choose to live in a country whose government has branded you as a liar and a cheat? Hardly an auspicious beginning.

Anyway, we are not expecting much, part from a 2-year+ wait and having pissed away $1,080. How can they approve her application when they have twice declared her as, in effect, a liar and fraudulent applicant? As would-be sponsor, I am equally crooked. It would be just a tad schizophrenic to turn around an approve such an unsavoury applicant for permanent residence, and scum like me as her sponsor, would it not?

Holy shit. So did you end up getting PR?

You're not scum at all, don't say that!!!!

To get this off my mind, I am going to file the T1135 and then file RC4288 (waiver of penalties) in response to any penalties imposed. The VDP will take too long. I believe I have a very strong case against CRA if they do impose penalties - they could not have reasonably expected me to know, and my accountant never took any reasonable steps to ascertain my need to file T1135.

At least it will be off my mind. And fuck it, I'm a wealthy guy who has otherwise never paid a fine/speeding ticket/credit card late payment in his life, never struggled for money and I have multiple properties. Who cares about $2500 in my situation, its 0.3% of my net worth at best. It stings short-term, but nowhere near as much as what other people have faced in their lives.

Just gotta accept in life that you will get screwed over for things that are no fault of your own. In this case tax penalties for forms I didn't know I needed to fill, bad advice, getting run over by a car when you were casually crossing the street. And there's my colleague who lost his 400,000-pound house and 3 kids to his wife and decided to restart his life in Canada at age 50.

This is just life. Best I can do is hope a reasonable person waives it. Failing that, I have the option to threaten my accountant with demand letters and take him to court. I'm sure it will work out and no biggie if it doesn't.

Thanks for bouncing ideas off me it was invaluable.

 

[moscatojuices]

Nope. We just got married in April. Canada wants from her country a marriage certificate issued by a specific national authority. We had a certificate right away from the Office of the Civil Registrar General, signed by the judge who performed the ceremony, among other official signatures, plus we had our licence, wedding pics and videos. So, so shortage of proof of a bona fide marriage. But Canada knows that to get the certificate it requires takes months, so in a bid to cause delay, that's the one they demand. It took 5 months to get it.

Then, we had to get several police clearances. My wife worked for a few years in Dubai and Abu Dhabi, ending about 11 years ago. If she had an "Emirates ID", she could apply online. She had no Emirates ID and could not recall if she ever had one. Her employer from then could not recall and said maybe not, since that form of ID was just being introduced then.

An alternate procedure was to work with police in her country to do fingerprinting to UAE specifications and to work through the UAE Embassy. We tried that. They embassy was no help at all and we were getting nowhere after having started online and paying the UAE fees, as requested, back in June. So, finally I asked Dubai police if we could just report to Dubai police in person, submit to whatever verification procedures they liked, and leave with the damn thing. They sent a 3-word email in reply: "YES YOU CAN." On the strength of that assurance, we travelled to Dubai for a week (we figured a week would be enough time to get the job done). It worked. We got the Dubai PCC last Thursday and submitted the PR application 2 days later. We paid at least $4,000 for the Dubai trip, just to get the damn PCC. Sure, I can afford it, but still irritating.

So now the long wait begins. Said to be about 2 years. But I am guessing that timeline will expand to 3 years or more. And, of course, nothing to say that, 2 years into the process, they will notice a box of a form left unticked, or a photo not quite up to snuff, and they will reject the application wholesale (which I read on this forum happens all the time) and we'll be forced to start over again.


Y'er welcome. Thanks for reading my diatribe. Need to vent now and again.

Good god this is a nightmare. They better not ask you for a PCC again.... which stream did you apply under?

 

[T4ROr]

I ended up in the same situation. My CPA asked me for value of my foreign property which is well over 100k and I provided him the amount, but he failed to file a T1135 form along with my 2021 tax returns. (He made other mistakes also, and I spent good chunk of last quarter of 2022 to correct all the mistakes). I was stressing out the whole day when I realized my 2021 returns don't have a T1135. To my relief, I found this in CRA docs
"An individual does not have to file Form T1135 for the tax year in which he or she first became resident in Canada."
https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/questions-answers-about-form-t1135.html

I moved to Canada from US in 2021, so I am guessing I am safe and only need to worry about filing T1135 from this year onwards.

 

[moscatojuices]

I ended up in the same situation. My CPA asked me for value of my foreign property which is well over 100k and I provided him the amount, but he failed to file a T1135 form along with my 2021 tax returns. (He made other mistakes also, and I spent good chunk of last quarter of 2022 to correct all the mistakes). I was stressing out the whole day when I realized my 2021 returns don't have a T1135. To my relief, I found this in CRA docs
"An individual does not have to file Form T1135 for the tax year in which he or she first became resident in Canada."
https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/questions-answers-about-form-t1135.html

I moved to Canada from US in 2021, so I am guessing I am safe and only need to worry about filing T1135 from this year onwards.

Hey don't stress. CRA should work with you to fix it and forgive newcomer mistakes, I'm going through amending a whole bunch of stuff with them and they've been friendly in their correspondences. There are also avenues of appeal and the ability to sue them with prior precedents set in the court. Nobody will be filing their taxes correctly if CRA punishes you for every little single thing.