The May 21st edition of the National Post featured an article by Jamie Golombek discussing the harshness of the penalties for late-failing a T1135 Foreign Income Verification Statement; a T1135 is required to be completed and included with the taxpayer’s income tax return if they own foreign property with a total cost greater than $100,000. In the article, a husband and wife were each assessed a penalty of $2,425 for reporting their condo in Florida 97 days late. In the article, Mr. Golombek also outlined that in circumstances amounting to gross negligence, the penalty would have been equal to $500 per month, to a maximum of $12,000.
However, the penalty is even stiffer than that described by Mr. Golombek. There is also an additional penalty if circumstances amounting to gross negligence exist. That penalty is equal to 5 percent of the highest cost amount reported on the T1135 less the $500/month penalty. The harshness of this penalty is multiplied if the T1135 was not filed for multiple years. The 5 percent penalty could apply for each particular year, meaning that if the form was not filed for 10 years, the penalty could be equal to half of the cost amount of the most valuable property.
In general, if a taxpayer has failed to file the T1135, they can avoid these penalties by filing a voluntary disclosure, assuming they meet all of the requirements of a valid voluntary disclosure. However, in the circumstance described in the article, a voluntary disclosure was not available because the T1135 was not more than one year past due.