Canadian Perspectives - September 1998
The information in this edition of Canadian Perspectives is prepared for general interest only. Every effort has been made to ensure that the contents are accurate as of September, 1998 but professional advice should always be obtained before acting on the information herein.
Foreign Reporting Modified, But Will Proceed
By Michael Cadesky, FCA, TEP
Cadesky and Associates LLP (Toronto)
In 1996, Canada proposed a system for reporting foreign assets. This system was broken down into four basic categories, being:
- Personal holdings of foreign assets costing over $100,000 in total
- Shares of foreign affiliates where you and related people have at least a 10% shareholding
- Transfers to foreign trusts that have Canadian beneficiaries
- Distributions from foreign trusts to Canadian residents
The rules were passed into law in April, 1997, applicable to 1996 and 1997. However, immediately after this, the first category of foreign reporting, being personal holdings, was postponed pending further study. The Auditor General was requested to review the suggested methodology of having individuals report ownership of foreign assets. His report this June concluded that the methodology was appropriate, and was the best way to enforce Canada's tax system in the foreign area.
Revenue Canada has now responded with how they intend to proceed with the personal holdings category of foreign reporting.
The forms are to be simplified, and now it will no longer be necessary to give specific details of foreign assets. Instead, there are to be a series of "yes" and "no" questions concerning an individual's foreign assets, which will obviously be designed to determine the existence of these assets and possible sources of income that may result from them.
We will have to wait to see the final version of the form, but it is likely that it will be quite easy to complete.
This new approach represents a reasonable compromise between giving the government the information they need to enforce Canada's tax laws, and maintaining confidentiality. For more details on the foreign reporting rules, see the article "Foreign Reporting Rules/Myths and Realities", later in this newsletter.
The reporting will apply to 1998, with the forms being due April 30, 1999 for most Canadian resident individuals. The extremely harsh penalties for non-compliance remain in effect.