What to Do If You Haven’t Filed a T1135 in a Long Time

Many Canadians with foreign assets are required to file a T1135 Foreign Income Verification Statementeach year, but many people don’t even know the form exists until it’s too late. Whether it’s because you hold U.S. stocks in a brokerage account, a vacation condo in Florida that you rent, or foreign bank accounts inherited from family abroad, the filing obligation applies if the total cost amount of foreign property is over $100,000 CAD at any point in the year.

If you haven’t filed your T1135 in years, you’re not alone. The Canada Revenue Agency (CRA) has been aggressively enforcing foreign reporting requirements in recent years, and thousands of taxpayers are facing penalties for late or missed filings. This article explains the consequences of failing to file, how penalties are calculated, and how you can potentially correct the problem through the Voluntary Disclosures Program (VDP).

Why the T1135 Exists

The T1135 isn’t about taxing foreign property, it’s about transparency. Canada taxes residents on worldwide income, so the CRA uses the T1135 to track whether Canadians are reporting their foreign income correctly. The CRA shares information with other tax authorities under agreements like the OECD’s Common Reporting Standard (CRS) and FATCA (Foreign Account Tax Compliance Act) with the United States.

If you fail to disclose foreign assets, the CRA may assume that you’re also failing to report the income those assets generate. That’s why the penalties are severe, even if your foreign investments are small or earned little income.

What Counts as “Foreign Property”?

The definition of “specified foreign property” under the Income Tax Act is broader than most people realize. It includes:

• Foreign bank accounts
• Shares of foreign corporations (even if held through a Canadian brokerage account)
• Rental property located outside Canada
• Debt owed by non-residents (e.g., foreign bonds)
• Mutual funds or ETFs that hold foreign securities (depending on structure)

Excluded assets: Your personal use property like a vacation home you don’t rent out does not need to be reported. Neither do assets held in RRSPs, TFSAs, or RESPs.

Penalties for Not Filing the T1135

Penalties can be financially devastating if you haven’t filed for multiple years.

• Basic Penalty: $25 per day late, up to $2,500 per year.
• Gross Negligence Penalty: $500 per month, up to $12,000 per year. This can apply if the CRA believes you willfully ignored the law.
• False Statement Penalty: If the CRA decides you knowingly provided false information, penalties can reach the greater of $24,000 or 5% of the unreported foreign property.
• Extended Reassessment Period: Normally, the CRA can reassess your return within 3 years, but if you don’t file a T1135, they can extend that period by another 3 years, giving them up to 6 years to audit.

Example:

If you owned U.S. stocks worth $250,000 in a Canadian brokerage account but failed to file a T1135 for 5 years, you could face:

• $2,500 × 5 years = $12,500 in basic penalties, or
• Up to $60,000 in gross negligence penalties if the CRA believes you intentionally ignored the rules.

Consequences Beyond Penalties

The financial penalties are only part of the problem. Other consequences include:

• Increased likelihood of a CRA audit
• Scrutiny into your foreign income reporting
• Interest charged on late taxes (if any foreign income wasn’t reported)
• Potential criminal investigation in extreme cases of deliberate non-disclosure

The CRA Voluntary Disclosures Program (VDP)

Fortunately, there is a way to fix past mistakes. The Voluntary Disclosures Program (VDP) allows taxpayers to come forward and correct errors, including unfiled T1135s, before the CRA contacts them.

To qualify, your disclosure must:

• Be voluntary (submitted before the CRA identifies the issue)
• Be complete (cover all years where T1135 filings were missed)
• Involve potential penalties
• Include information that is at least one year past due

The New VDP Relief Categories (After October 1, 2025)

The CRA no longer uses the old “General” vs “Limited” tracks. Instead, applications are assessed as either Unprompted or Prompted, depending on whether the CRA had already flagged your compliance issue.

Unprompted Applications (best case scenario):

• You apply before the CRA has contacted you about the T1135 or identified the error.
• Relief:
  • 100% of penalties waived
  • Up to 75% of interest waived.
• You must still pay the taxes owing (if any foreign income was not reported).

Prompted Applications (less generous):

• You apply after receiving a CRA communication about the issue (for example, a letter requesting a T1135 or foreign reporting audit).
• Relief: Penalties may still be waived, but only 25% of interest may be waived.
• Taxes remain payable in full.

If the CRA has already opened a full audit or if your non-compliance was deliberate and egregious, you may not qualify at all.

Why This Matters for T1135 Filings

If you haven’t filed in years and the CRA has not yet contacted you, you could qualify for the unprompted category and secure maximum penalty relief. But once the CRA reaches out, especially if they already have data from foreign banks or brokerages, you’ll likely fall under the prompted category, with far less relief. Timing is everything.

Final Thoughts

Failing to file T1135 forms can spiral into huge penalties and stress. The CRA’s Voluntary Disclosures Program gives Canadians a second chance to correct past mistakes, provided they act before being contacted. With professional help, you can bring your tax filings up to date, minimize penalties, and move forward with peace of mind.

If you’ve missed T1135 filings, reach out to TaxHelp.ca today to discuss your options and protect yourself from escalating CRA penalties.