Court Denies Taxpayer Relief from CRA Penalties for Late Foreign Holdings Filing
As tax season approaches, a recent Federal Court decision serves as a stark reminder of the severe consequences for failing to file foreign property disclosures on time. The court upheld Canada Revenue Agency penalties against a British Columbia taxpayer who filed Form T1135 late for the 2021 and 2022 taxation years.
The Costly Consequences of Late Filing
The case involved a taxpayer who accumulated $4,500 in penalties and arrears interest for submitting his Foreign Income Verification Statement forms in July 2023, well past the deadlines. The standard penalty for late T1135 filing is $25 per day, with a maximum of $2,500, plus interest charges. However, penalties can escalate dramatically to $500 per month (maximum $12,000) if the CRA determines the failure was "knowingly or under circumstances amounting to gross negligence." After 24 months, the penalty becomes five percent of the foreign property's cost, minus any previously assessed penalties.
What Constitutes Reportable Foreign Property?
Canadian taxpayers must file Form T1135 if they owned specified foreign property with a total cost exceeding $100,000 at any point during the tax year. This includes:
- Foreign bank accounts (such as Swiss or Cayman Island accounts)
- Shares of foreign corporations held in non-registered accounts (including widely-held U.S. companies like Apple or Nvidia)
- Various other foreign investments and assets
Important exemptions include personal use property like vacation homes and assets held within registered accounts such as RRSPs, RRIFs, and TFSAs. The reporting requirement appears prominently on page two of the personal income tax return under the "Foreign property" heading.
The Failed Appeal Process
The taxpayer initially sought relief directly from the CRA, arguing he experienced "technical difficulties" with his tax software and that the penalties caused him "financial hardship" due to his personal circumstances. After the CRA denied his first request, he pursued a second-level review, which also rejected his appeal.
The case ultimately reached the Federal Court in Vancouver in September 2025, where the judge's role was limited to determining whether the CRA officer's decision was "reasonable" based on established legal standards. The Supreme Court of Canada has defined a reasonable decision as "one that is based on an internally coherent and rational chain of analysis and that is justified in relation to the facts and law that constrain the decision maker."
Why the Court Upheld the Penalties
The judge found the CRA officer had properly considered the taxpayer's arguments before making the decision. Regarding the technical difficulties claim, the officer noted the taxpayer had successfully used the same software to file his regular income tax returns for the years in question. Furthermore, the taxpayer failed to act promptly to correct the late filing despite receiving warnings about potential penalties.
This case underscores the importance of timely compliance with foreign property reporting requirements, especially as nearly half of millennials report dipping into savings to pay bills and 40 percent express concern about never paying off their debts. With tax season underway, financial experts like Jamie Golombek emphasize the critical need to gather all necessary slips and documentation, particularly for foreign holdings, to avoid potentially devastating penalties.
