First year filing in Canada with T1135

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Question

Hi Phil,

I came across your website on Google, and I am interested in accounting services to complete my 2021 US Tax Return and my 2020 + 2021 Canadian Tax Return, as well as receive tax planning advice. I am a US Citizen living in Victoria on a student permit since March 2020 (I am a new resident), and have been a full time student at College since Feb 2020. I am in a common law partnership (since June 2021) with a Canadian citizen, and I am in the process of applying for permanent residency via common-law sponsorship (submitted April 2021). I am up to date on my US taxes, which I file at the beginning of the year with my CPA in the US, though I am looking to shift to someone who does both US + Canadian taxes.

I own one property in the US and receive income from its rental. I transfer myself funds monthly via the bankand this is the only income I have received or made in Canada since arriving in March 2020. Since I do not make income in Canada, I thought I did not have to file taxes in Canada. This weekend, I had a meeting with my bank to talk about raising my credit limit and was advised that I need to complete my taxes for every year that I am here in Canada.

Until now, I did not realize the tax implications that having a rental property and bank assets would have in Canada, so I have to file my 2020 +2021 taxes, and I need advice to plan for the future. I am grateful to have found this out at the bank, otherwise I would have missed two years of filing! Based on a blog post on your site about the T1135 form, “Taxpayers get a first year exemption from filing their T1135 in the first year they become a tax resident of Canada. Note however that this only applies to new residents and not those that were Canadian tax residents in prior years.” Based on this, I am heartened that I can still rectify this and figure out how to move forward with a clear strategy into the years ahead.

What are your fees/hourly rate, and how can I schedule an appointment with you? I have relevant paperwork regarding my 2021 US taxes in the mail on its way to me, but once it’s here, I would love to schedule an appointment with you, probably in late January/early February.

Thank you, and I look forward to hearing back from you

XXXXX

Answer

Hi xxxxx

Thanks for the email.

I can outline some general thoughts below, however we’ll want to schedule a paid consult to review your situation in more detail.

Yes, even though you may be under the filing threshold it’s always a good idea to file tax returns regardless. In most cases CRA will simply ask for returns and you’ll need to file anyways.

You are also correct that you’ll receive a “first year” exemption for filing of the T1135, however for 2021 you’ll want to ensure that you not only file the T1135 but also report the US rental income for both Canadian and US purposes.

Because you didn’t file Canadian taxes for 2020 CRA doesn’t currently know that you’re a tax resident. Filing Canadian taxes upon entry is important as you enter your Canadian residency entry date directly on the tax return. That will become the beginning date of your taxation in Canada. I would suggest going back to file the 2020 to ensure they have this information on file for subsequent years.

I’m assuming that you filed FBARs for 2020 for US purposes, assuming you were over the $10,000 threshold.

Once again, we should review your situation in more detail via a paid consult to flush out what actually needs to be filed for 2020 and 2021.

Hope that helps.

Regards

Phil

 

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