Turbotax: Foreign Income Verification

 

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Relevant Material: Foreign income verification, primarily done via CRA Form T1135, is a mandatory legal requirement for Canadian residents holding specified foreign property valued over $100,000 CAD. The significance lies in ensuring tax compliance, helping the Canada Revenue Agency (CRA) identify unreported worldwide income and potential tax evasion. 

Significance of Foreign Income Verification
  • Legal Requirement: Canadian residents are legally required to report all worldwide income, including from foreign sources. Form T1135, the Foreign Income Verification Statement, is a key part of this obligation if your foreign property's total cost exceeded $100,000 CAD at any point during the year.
  • Ensures Compliance and Prevents Evasion: The main objective is for the CRA to verify that taxpayers are correctly reporting all foreign-sourced income and to better target international tax evasion. Over 100 countries now automatically share taxpayer data with the CRA, making non-compliance easily detectable.
  • Avoids Severe Penalties: Failure to file Form T1135 on time or accurately can result in significant fines, starting at $25 per day up to $2,500 per taxpayer per year. Hefty penalties are imposed if this form is not filed correctly.
  • Facilitates Tax Credits: Proper reporting allows you to claim foreign tax credits (using Form T2209) to avoid double taxation if you've already paid taxes on that income in another country. 
TurboTax's Role
TurboTax assists in the foreign income verification process by: 
  • Guiding the User: The software prompts users with a specific question in the tax return process: "Did you own or hold foreign property at any time in the year with a total cost of more than CAN$100,000?".
  • Form Preparation: If you answer "Yes," TurboTax guides you through accurately completing the required information for Form T1135 and any related forms, such as Form T2209 for foreign tax credits.
  • Ensuring Accuracy: It helps users convert foreign currency amounts to Canadian dollars using the appropriate exchange rates and ensures detailed transaction records are considered.
  • E-filing: TurboTax allows for the electronic filing (EFILE or NETFILE) of Form T1135 for individuals, simplifying the submission process. 
For detailed guidance and the official form, you can visit the Canada Revenue Agency website.  (Google) 
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