Form 1135 is where Canadians report foreign property that exceeds $100,000 CAD. There is no obligation to pay tax but failing to file the T1135 can result in penalties of up to $2,500 per tax year.
There is still some grey area when it comes to the T1135 and cryptocurrency. There are two factors in determining whether a T1135 needs to be filed.
- Specified Foreign Property
The CRA has determined that digital currency is “funds or intangible property” which is considered Specified Foreign Property.
- Foreign or Domestic Property
This is determined by what kind of crypto wallet you are using to store your cryptocurrency. Cold wallets are physical devices like a USB which are not connected to the internet. Hot wallets are those that are online. There is a huge complication when trying to figure out where the asset is located. One consideration is where the primary server is.
Crypto users who conduct active business, such as mining and trading (which is dependent on the trading activity) are considered active business which are exempt from T1135 reporting. With, taxpayers who are exempt from reporting a T1135 will be subject to a higher tax.
This is general comment, and you should contact Tax Partners for any questions by sending an email to [email protected] or (905) 836-8755.
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