by Bhavika Chadha

by Elias Zafiridis

TaxJune 3, 20251 comment

Failure to File T1135: Consequences and How to Fix It

The T1135 – Foreign Income Verification Statement is a key tax compliance form required by the Canada Revenue Agency (CRA) for Canadian residents who own foreign property. Failing to file this form—whether intentionally or accidentally—can result in substantial penalties, heightened audit risk, and, in extreme cases, criminal investigation.

This article explores what the T1135 is, who must file it, what happens when you don’t, and how to rectify the situation if you’ve missed the deadline.

What Is the T1135 Form?

The T1135 is an annual disclosure form required for Canadian taxpayers who own specified foreign property with a total cost of more than $100,000 CAD at any point during the tax year.

“Specified foreign property” includes (but is not limited to):

• Foreign bank accounts
• Stocks and securities held outside of Canada
• Interests in foreign trusts
• Foreign rental properties
• Cryptocurrency (in some cases, when held on non-Canadian platforms)

It does not include:

• Property used in an active business
• Foreign investments held within Canadian-registered accounts (like RRSPs or TFSAs)

The purpose of the form is to help the CRA combat tax evasion by increasing transparency around foreign-held assets.

Who Must File T1135?

You must file Form T1135 if:

• Canadian resident individuals, corporations, and certain trusts that, at any time during the year, own specified foreign property costing more than $100,000;
• certain partnerships that hold more than $100,000 of specified foreign property

Both individuals and businesses are subject to this requirement. Even if you earn no income from the foreign property, the ownership alone can trigger the filing obligation.

What Happens If You Don’t File T1135?

1. Late Filing Penalties

The standard penalty for a failure to file is:

• $25 per day, up to a maximum of $2,500 per year

If the CRA determines that the failure was due to gross negligence, additional penalties apply:

• Up to $24,000, and
• An extra 5% of the value of the unreported foreign property

2. Audit Triggers

Failure to file T1135 is a known audit trigger. The CRA treats foreign property reporting seriously and may use non-compliance as grounds to launch a broader audit of your income tax filings.

3. Suspension of Statute of Limitations

If you do not file the T1135 form, the CRA is not bound by the normal reassessment limitation period for your tax return. This means they can reopen and audit your return indefinitely, rather than being limited to three years from the date of assessment.

4. Criminal Charges in Extreme Cases

While rare, intentional concealment of foreign assets—especially if paired with unreported income—can lead to criminal tax evasion charges, including fines and jail time.

Common Reasons Taxpayers Fail to File T1135

• Unawareness of Foreign Brokerage Holdings: Many taxpayers don’t realize that U.S. stocks or ETFs held in foreign (non-Canadian) brokerage accounts constitute specified foreign property, even if the brokerage has a Canadian interface.

• Misunderstanding the threshold: The threshold is based on original cost (not fair market value), and it applies cumulatively to all specified foreign property held at any point during the tax year.
• No Income Doesn’t Mean No Filing: Filing is still required even if the foreign property generated no income. The obligation is based on ownership, not income earned.
• Crypto confusion: Crypto assets may qualify as specified foreign property when held in foreign-based exchanges or non-Canadian custodial wallets. The CRA has not published exhaustive guidance, so conservative reporting is often advisable.

How to Rectify a Missed T1135 Filing

1. File the Outstanding Form Immediately

Even if the deadline has passed, filing the form as soon as possible is always the first step to minimize penalties.

You can submit Form T1135:

• Electronically through the CRA’s My Account or EFILE-certified software
• By paper mail, if necessary

2. Apply to the Voluntary Disclosures Program (VDP)

If your failure to file was unintentional and you’re not under CRA audit, you may be eligible to file through the CRA’s Voluntary Disclosures Program, which can:

• Eliminate penalties
• Reduce interest
• Protect you from criminal prosecution

To qualify for the VDP:

• Your disclosure must be voluntary (before the CRA contacts you)
• It must be complete
• It must involve the potential of a penalty or prosecution

You’ll need to file a VDP application along with all relevant documents, including the missed T1135 forms and amended tax returns if income was also missed.

3. Work With a Tax Lawyer

Given the potential complexity, especially if you’re dealing with multiple years of non-compliance or uncertain eligibility for the VDP, a tax lawyer can:

• Assess your legal exposure
• Help you navigate the VDP
• Liaise with the CRA on your behalf
• Ensure full compliance going forward

How a Tax Lawyer Can Help

T1135 non-compliance may seem like a simple filing error, but it can open the door to serious penalties and CRA scrutiny. A tax lawyer can:

• Determine if you’re at risk
• File disclosures under the VDP
• Defend against penalties or audit assessments
• Advise on ongoing foreign reporting obligations

At Rosen & Associates Tax Law, we help clients manage overdue T1135 filings, avoid penalties, and stay compliant with CRA foreign asset rules.

Schedule a free consultation to resolve your T1135 issue and protect your financial future.

Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.