CRA penalizes new immigrants who were late reporting foreign property

Canada Revenue Agency headquarters in Ottawa. Photo by HYUNGCHEOL PARK/Postmedia files

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Canadian taxpayers who own, but fail to report, certain foreign property continue to get hit with harsh penalties from the Canada Revenue Agency for either non-filing, or late-filing, of the dreaded Form T1135, Foreign Income Verification Statement.

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While some taxpayers simply pay the penalty and move on, others may choose to challenge the penalty, first by writing to the CRA begging for relief, and, if unsuccessful, taking the matter to federal court where a judge will decide whether the CRA officer’s decision to deny relief was reasonable. A June 2026 federal court decision dealt with a couple who immigrated to Canada, and were hit with penalties for failing to file their T1135s on time.

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Before reviewing the details of the case, here’s a brief overview of the foreign reporting rules, including the penalties for late-filing.

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If you own “specified foreign property” where the total cost amount of all such property, at any time in the year, was more than $100,000 in the prior year, you must complete form T1135. Foreign property includes such assets as a Florida bank account, as well as shares of widely-held U.S. corporations such as Apple Inc. or Nvidia Corp. if held in a non-registered account. Personal use property, such as an Arizona condo, is excluded, as are any assets held in registered accounts such as a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA).

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Failure to file the form can lead to a late-filing penalty of $25 per day to a maximum of $2,500, plus arrears interest. For taxpayers who fail to file the T1135 “knowingly or under circumstances amounting to gross negligence,” the penalty jumps to $500 per month for each month that the return is late, to a maximum of $12,000. After 24 months, the penalty becomes five per cent of the cost of the foreign property, less any penalties already assessed.

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The most recent T1135 case involved a couple who immigrated to Canada in October 2018 and returned to India the following month, where they remained until May 2019. Upon their return to Canada, the taxpayers filed Canadian tax returns, but neglected to file the T1135 forms for 2018 and 2019.

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It later occurred to them that they should have been filing T1135s to report foreign property from the year they immigrated. (While there’s generally an exemption to file for the year you immigrate, it seems that this couple was previously resident in Canada a decade earlier and therefore this exemption didn’t apply to them.) As soon as they realized they ought to be reporting their foreign assets, they voluntarily filed the missing T1135s, along with their regular tax filings, in April 2022.

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Rather than thanking the taxpayers for their honesty and for coming forward about their foreign assets, on June 1, 2022, the CRA issued Notices of Reassessment to the taxpayers for the 2018 and 2019 taxation years, indicating that they were each being charged a $2,500 penalty for each late filing ($5,000 in total for each year), plus arrears interest, for the late-filed T1135s.