What is the penalty for not filing a T1135, and how do I fix a missed year?

The straightforward late-filing penalty

The T1135, Foreign Income Verification Statement, has its own penalty separate from anything that applies to a late T1 or T2. As at the time of writing, filing it after the due date costs $25 for each day it is late, with a floor of $100 and a ceiling of $2,500 for that year. This penalty applies even if the return itself was filed on time and even if there was no tax owing at all, since the T1135 penalty is tied to the reporting obligation, not to a balance due.

When it turns into a gross negligence penalty

The $2,500 ceiling assumes an ordinary late filing. Where the CRA concludes the failure to file, or a false statement on the form, was made knowingly or under circumstances amounting to gross negligence, the penalty structure changes to $500 a month, and it can apply for a much longer stretch than a simple late-filing case would run. This higher penalty is generally reserved for situations where someone was clearly aware of the foreign property and chose not to report it, rather than a genuine oversight, but it is a real risk once a missed year has gone unaddressed for a long time.

Why a missed T1135 also extends the reassessment period

Beyond the dollar penalty, failing to file a T1135, or filing one that is incomplete or inaccurate, keeps that tax year open to CRA reassessment well beyond the normal window that would otherwise apply. Because specified foreign property is exactly the kind of asset the CRA has limited visibility into without the form, the extended period is designed to give the CRA time to catch issues that would not surface through a routine review of a domestic return. This is a strong reason to fix a missed T1135 proactively rather than hoping the year simply ages out.

Fixing a missed year through the Voluntary Disclosures Program

The Voluntary Disclosures Program, or VDP, lets a taxpayer come forward and file a missed T1135, or correct a wrong one, before the CRA has taken any action to contact them about it. To qualify, the disclosure generally needs to be voluntary, meaning it starts before any audit, inquiry or enforcement action touches that issue, complete, meaning it covers every year and every foreign property involved rather than just the easiest one, and it needs to involve a penalty that would otherwise apply. Where the CRA accepts the application, it typically cancels the late-filing and gross negligence penalties that would otherwise apply and gives some relief on the interest for older years. Once the CRA has already reached out, whether by letter, phone call, or the start of an audit, the VDP is generally no longer available for that issue, which is why timing matters more than almost anything else in this process. Our answer on the Voluntary Disclosures Program covers eligibility in more depth.

Why the CRA often already has the data

A missed T1135 is not necessarily a quiet secret. Canada exchanges account information with other countries under the OECD's Common Reporting Standard, and receives information on US accounts held by Canadian residents through a similar arrangement with the IRS. That means the CRA routinely has statements showing a foreign account existed, even if no one told it directly, and can use that data to flag a return that never carried a T1135. This is one of the reasons a disclosure made before contact is worth so much more than fixing the same gap after a CRA letter arrives: once the CRA already holds the underlying data and reaches out, the voluntary window has effectively closed.

Interest keeps running while the penalty sits unresolved

The penalty itself is only part of the cost of a late or missing T1135. Where a missed filing is tied to unreported foreign income, any additional tax owing as a result also carries CRA arrears interest from the original due date, compounding daily until it is paid. A Voluntary Disclosures Program acceptance can reduce that interest for older years within the disclosure, but it rarely eliminates it entirely, so the total cost of leaving a gap unresolved is usually higher than the $2,500 late-filing ceiling alone suggests.

Getting future years filed correctly

Once a missed year is cleared up, the ongoing obligation is simple to manage if the property records are kept current through the year rather than assembled at tax time. The form itself has a simplified reporting option for taxpayers whose total cost of specified foreign property stayed under a set threshold throughout the year, requiring less detail per property than the full method required above that line, so keeping a running total of your foreign holdings' cost makes it easy to know which version applies before filing season arrives. Our companion answer on whether US stocks in a Canadian brokerage count for T1135 covers what actually needs to be on the list in the first place.

How we clean up and file T1135s

We start by reconstructing the cost history for every specified foreign property across the missed years, since the penalty exposure and the VDP application both depend on getting that history right. Where a client has not yet been contacted by the CRA about the gap, we prepare and submit the disclosure through the Voluntary Disclosures Program; where they file on time going forward, we build the T1135 into the same engagement as the T1 each year. This work runs through our T1135 foreign income verification guide and our cross-border tax services, with fees confirmed after a discovery call once we know how many years and properties are involved.

Source: CRA — T1135 Foreign Income Verification Statement.