Sometime ago, I wrote that the Income Tax Act requires persons and partnerships to file information returns in respect of foreign property ownership (specified foreign property in excess $100,000) and transactions with non-residents . This extends to trusts and estates. Those who file such a return late or do not file one on demand are liable to a penalty or penalties. Generally speaking, a penalty starts at a minimum of $100 to a maximum of $2,500, if over 100 days late. If the filing is late by 24 months or longer and/or the late reporting is deemed to be the result of willful negligence or misrepresentation, then the penalty is assessed as a % of the fair market value of the assets being reported on. These are not insignificant penalties.
As the calendar year end approaches, I thought it would be useful to revisit this as a way to remind ourselves personally (and as administrators of estates and trusts) of the obligation to report and make a few additional comments related to the subject.
There is no question in my mind (as well as to my fellow bloggers, I am sure) that holding foreign assets has become a very high profile issue nationally and internationally – the Panama Papers and the Paradise Papers leaks are recent examples of the growing perception that people are “hiding” their wealth in foreign jurisdictions and not reporting it. So compliance with foreign reporting obligations is bigger than ever, so to speak.
Incidentally, specified foreign property (“SFP”) includes not only real estate but business assets and publicly traded individual foreign securities including those in the United States of America.
Since 2015, investors with specified foreign property over $250,000 have had greater reporting obligations, very detailed in fact. This can be a lot of paper work. Financial planners and advisors will tell you that, if you can, spread your assets a bit so you reduce individual “SFP”’s to $100,000 or less to avoid the “detailed” (and revert to “simplified”) reporting required.
As a final note, many have used the Voluntary Disclosures Program to escape penalties associated with non –compliance of the foreign reporting requirements for previous years. As my fellow bloggers have noted, this may come to an end with the New Year. So consult a pro right away if you believe you may be non-compliant. Tempus fugit.