No Tax Owed, Still Penalized: How the CRA Treats a Late T1135
Every spring, the Canada Revenue Agency receives a short information form from Canadians who hold assets outside the country. It calculates no tax and asks for no payment. It simply tells the CRA what you own abroad. That form is the T1135, and if it arrives late, the CRA can charge a penalty even when your tax return shows a refund.
Why owing nothing doesn't protect you
Most people know the regular late-filing penalty on a tax return. Under CRA rules, it is 5% of the balance owing plus 1% for each full month late, up to 12 months. Because that penalty is calculated on what you owe, someone who owes nothing usually pays nothing for filing late. That is where the confusion starts.
The T1135 penalty works differently. It is $25 for each day the form is late, up to a cap of $2,500 for each year. It has nothing to do with your tax balance. The form's job is transparency. It helps the CRA track foreign assets so income can't quietly go unreported. Federal Court decisions have backed this up. The CRA does not have to show that any tax was lost. The penalty exists to make people file on time.
If someone knowingly fails to file, or is grossly careless about it, much larger penalties can apply. And a missed form can stay a problem for years if nobody catches it.
Who has to file
You must file if the total cost of your "specified foreign property" was more than $100,000 CAD at any point in the year. Cost means what you paid, or the value when you inherited the asset or moved to Canada. It does not mean what the asset is worth today. If you bought something for $90,000 and it is now worth $150,000, that asset on its own does not trigger the form.
For many clients in Edmonton and across Alberta, the requirement shows up in a few familiar ways:
A rental property in the U.S. A condo in Arizona that you rent out counts. A vacation home used only by you and your family is generally exempt. Once it earns rental income, it likely becomes reportable.
U.S. shares in a Canadian account. Holding Apple or Amazon shares in a regular, non-registered brokerage account at an Alberta bank still counts as foreign property. The account is Canadian, but the shares are not. Foreign holdings inside an RRSP or TFSA are exempt.
Money in foreign bank accounts. This includes an inheritance sitting in an account overseas, or a business owner's U.S. dollar account holding funds for equipment purchases.
Cryptocurrency held outside Canada, which is generally treated as specified foreign property.
If your total foreign property costs between $100,000 and $250,000, a simpler reporting method is available. Above $250,000, the CRA asks for much more detail.
The rental-at-a-loss trap
This is where investors tend to get caught. A U.S. rental runs at a loss for the year, so there is no foreign income to report and no Canadian tax owing on it. It feels like there's nothing to file. But the T1135 asks what you own, not what you earned. If the property cost more than $100,000, the form is still due on the same date as your personal tax return.
This matters beyond the penalty. When we review an investor's file for a mortgage, we look at tax documents and any balance owing to the CRA. An unexpected penalty assessment is one more thing that can complicate an approval that should have been simple.
If you've already missed it
If you realize earlier years were never filed, the CRA's Voluntary Disclosure Program may give you some penalty relief. It generally works best when you come forward before the CRA contacts you. Once the CRA reaches out first, your options get narrower.
For anyone holding a U.S. rental, a foreign account or a large position in U.S. stocks outside an RRSP or TFSA, the useful question at tax time is not whether you owe anything. It's what you paid for everything you own outside Canada, and whether that total ever went over $100,000 during the year.
Every spring, the Canada Revenue Agency receives a short information form from Canadians who hold assets outside the country. It calculates no tax and asks for no payment. It simply tells the CRA what you own abroad. That form is the T1135, and if it arrives late, the CRA can charge a penalty even when your tax return shows a refund.
Why owing nothing doesn't protect you
Most people know the regular late-filing penalty on a tax return. Under CRA rules, it is 5% of the balance owing plus 1% for each full month late, up to 12 months. Because that penalty is calculated on what you owe, someone who owes nothing usually pays nothing for filing late. That is where the confusion starts.
The T1135 penalty works differently. It is $25 for each day the form is late, up to a cap of $2,500 for each year. It has nothing to do with your tax balance. The form's job is transparency. It helps the CRA track foreign assets so income can't quietly go unreported. Federal Court decisions have backed this up. The CRA does not have to show that any tax was lost. The penalty exists to make people file on time.
If someone knowingly fails to file, or is grossly careless about it, much larger penalties can apply. And a missed form can stay a problem for years if nobody catches it.
Who has to file
You must file if the total cost of your "specified foreign property" was more than $100,000 CAD at any point in the year. Cost means what you paid, or the value when you inherited the asset or moved to Canada. It does not mean what the asset is worth today. If you bought something for $90,000 and it is now worth $150,000, that asset on its own does not trigger the form.
For many clients in Edmonton and across Alberta, the requirement shows up in a few familiar ways:
If your total foreign property costs between $100,000 and $250,000, a simpler reporting method is available. Above $250,000, the CRA asks for much more detail.
The rental-at-a-loss trap
This is where investors tend to get caught. A U.S. rental runs at a loss for the year, so there is no foreign income to report and no Canadian tax owing on it. It feels like there's nothing to file. But the T1135 asks what you own, not what you earned. If the property cost more than $100,000, the form is still due on the same date as your personal tax return.
This matters beyond the penalty. When we review an investor's file for a mortgage, we look at tax documents and any balance owing to the CRA. An unexpected penalty assessment is one more thing that can complicate an approval that should have been simple.
If you've already missed it
If you realize earlier years were never filed, the CRA's Voluntary Disclosure Program may give you some penalty relief. It generally works best when you come forward before the CRA contacts you. Once the CRA reaches out first, your options get narrower.
For anyone holding a U.S. rental, a foreign account or a large position in U.S. stocks outside an RRSP or TFSA, the useful question at tax time is not whether you owe anything. It's what you paid for everything you own outside Canada, and whether that total ever went over $100,000 during the year.
Sources
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