Canadian investors who hold precious metals such as gold or silver in vaults outside Canada may need to report them to the Canada Revenue Agency (CRA) under foreign property reporting rules, according to a new technical interpretation released this week.
Foreign Property Reporting Obligations
The CRA's guidance clarifies that physical metals stored abroad, whether as registered bars or as an undivided interest in a metal pool, constitute specified foreign property. If the total cost of such metals exceeds $100,000 at any time during the year, investors must file Form T1135, Foreign Income Verification Statement, along with their annual tax return.
Failure to file the form on time results in a late-filing penalty of $25 per day, up to a maximum of $2,500, plus arrears interest. If the failure is deemed knowing or due to gross negligence, the penalty increases to $500 per month for each month the return is late, capped at $12,000. After 24 months, the penalty becomes five per cent of the cost of the foreign property, minus any previous penalties.
What Counts as Foreign Property
Foreign property includes assets such as foreign bank accounts and shares of widely held foreign corporations held outside registered accounts. Personal-use property, like a vacation home in Arizona, is excluded, as are assets held in registered accounts such as RRSPs, RRIFs, and TFSAs.
The CRA's technical interpretation was issued in response to a taxpayer who uses a Canadian corporation's online platform to buy and sell precious metals. The corporation stores the metals in a vault outside Canada and provides clients with an electronic record of their holdings.
Registered vs. Non-Registered Metals
Investors can hold metals in two ways: as registered bars or as non-registered metals. Registered bars are individually identifiable and can be physically delivered upon demand. Non-registered metals represent a proportionate undivided interest in the total weight of metal held by the corporation.
The CRA distinguished between legal ownership and beneficial ownership. While beneficial ownership is not defined in the Income Tax Act, case law recognizes key characteristics such as possession, use, risk, and control. The agency noted that taxpayers with beneficial ownership of metals stored abroad are subject to reporting requirements.
Penalties for Non-Compliance
The CRA emphasized that failing to report foreign property can lead to significant penalties. Investors should carefully review their holdings and consult a tax professional if they are unsure about their reporting obligations.
This interpretation serves as a reminder that physical assets stored outside Canada, even if held through a Canadian intermediary, may trigger foreign property reporting requirements. The $100,000 cost threshold applies to the total of all specified foreign property, not just precious metals.
