T1134 & T1135 Reporting Pitfalls: How Recent CRA Audit Trends Target Foreign Property Disclosures.

Forms T1134 and T1135 are information returns. They often involve little or no tax on their own, which makes them easy to underestimate. Yet late, incomplete or inconsistent filings can attract significant penalties, keep tax years open longer and invite scrutiny of the underlying structure. For taxpayers with foreign investments or foreign companies, these two forms can be where a CRA review begins.

Why International Reporting Attracts Attention

The CRA has for several years described offshore compliance and international reporting as areas of focus. Its ability to act on that focus has grown with the information available to it:

• financial account information exchanged automatically with other tax authorities under the Common Reporting Standard, and with the United States under the intergovernmental agreement implementing FATCA;
• reports by Canadian financial institutions of large international electronic funds transfers; and
• the information returns themselves, which can be compared with income reported, foreign tax credits claimed and filings by related parties.

The practical consequence is that the CRA may know about a foreign account, entity or transfer before the taxpayer reports it. Reviews in this area tend to test two things: whether the information returns are complete, and whether they reconcile with the rest of the taxpayer's filings.

T1135: Where Filers Go Wrong

Canadian residents, including individuals, corporations, trusts and certain partnerships, must file Form T1135 when the total cost of their specified foreign property exceeds $100,000 at any time in the year. Recurring issues include:

• Measuring by value rather than cost. The threshold is based on cost amount, translated into Canadian dollars, not on market value.
• Assuming Canadian accounts are excluded. Foreign securities held through a Canadian brokerage account are specified foreign property, although they may be reported on an aggregate basis.
• Misclassifying real estate. A foreign property used primarily for personal use is generally excluded; a rental property is not.
• Overlooking debts and trust interests. Loans to non-residents and certain interests in foreign trusts can be reportable.
• Joint ownership. Each owner assesses the threshold on their own share of the cost.
• Newcomers. An individual is not required to file for the year they first become resident in Canada, but the obligation applies from the following year.

T1134: Where Filers Go Wrong

Canadian taxpayers with foreign affiliates must generally file Form T1134 within ten months after year-end, a shorter deadline than applied to earlier years. Recurring issues include:

• Missing affiliates. Indirect holdings, 10% interests held together with related persons, and entities such as U.S. limited liability companies that are corporations for Canadian purposes can be omitted.
• Relying on dormant-affiliate relief. Reduced reporting for dormant or inactive affiliates is narrower than it may appear, and those affiliates must still be identified.
• Inconsistency with the underlying analysis. The current form asks for information that depends on technical work, such as FAPI, the tax cost of affiliate shares, upstream loans and the application of the foreign affiliate dumping rules. A return that does not reconcile with those calculations can prompt further questions.
• Missing records. Foreign financial statements and ownership records should be available to support the return.

The Cost of Getting It Wrong

Penalties for late filing accrue over time, and substantially higher penalties can apply where a failure is made knowingly or in circumstances amounting to gross negligence, including penalties calculated by reference to the cost of the property involved. Penalties can apply even where no additional tax is owing. Non-compliance can also extend the period during which the CRA can reassess the related income, and the CRA can issue formal requirements for foreign-based information.

Correcting the Record

Where past filings are missing or incorrect, the order of operations matters. Filing a missing return without first reconstructing the facts can create new inconsistencies. A structured correction begins by establishing what existed, who owned it, what income arose, what was previously reported and which years remain open.

The CRA's Voluntary Disclosures Program was revised effective October 1, 2025. It now distinguishes between unprompted applications, made before any CRA contact about the issue, and prompted applications, made after such contact. At the time of writing, unprompted applications may receive relief from 75% of the applicable interest and all applicable penalties, while prompted applications may receive 25% interest relief and up to full penalty relief. Eligibility is generally restricted once an audit or investigation has begun, so timing has direct financial consequences.

Building a Sustainable Process

Annual compliance is easier to sustain than periodic reconstruction. A current register of foreign assets and entities, with cost, ownership and income tracked in Canadian dollars; a filing calendar that reflects the T1134 deadline; and coordination with investment managers and foreign accountants help keep each year's returns consistent with the last.

International information returns are ultimately a record of how a taxpayer's cross-border affairs fit together. When that record is complete and internally consistent, a CRA review can be addressed with documentation rather than reconstruction under time pressure.

This brief provides general information and is not advice for a specific situation.