Question about T1135 after inheritance

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Question

Hi Phil,

Thanks for all the info you provide in your blog. Please let me know if you can help me with the question below or whether this question can be referred to a colleague. I’m happy to have a paid phone consultation as well.

I am a dual citizen living in Ottawa (and doing my own taxes!) for many years. I had an inheritance from the US this year, nearly all of which was in the form of securities transferred directly to me upon the death of my mom. She had a Fidelity Transfer on death (TOD) account and my sister and I were the beneficiaries.

The estate itself just had cash proceeds from the sale of her house and two bond redemptions. All of the income and gains of the estate will be dealt with on her estate tax return. I think the reporting on the T1141 mostly involves a routine distribution of cash simply from a bank account. I think – hope – the rest is easy.

My main question is how to report foreign securities – transferred mid-year – on the T1135. After the securities transfer from her Fidelity TOD account to a beneficiary individual US-based Fidelity account for me I sold only one or two securities. Everything else was transferred five weeks later (January 31, 2023) to a Canadian Interactive Brokers (IBKR) account. Then I sold all of the individual stocks immediately and retained the US-listed ETFs. On my IBKR “foreign asset worksheet” most of these assets are summarized nicely for an aggregate report on the T1135. I know you can do an “aggregate” report if the securities are with a registered Canadian securities dealer. Some – the individual stocks sold the first day or two after the transfer to Canada – were left out of the worksheet, and I assume will report those individually.

My main question is: can I use the aggregate reporting method for all of the securities aggregated on the worksheet even though they spent five weeks sitting in a Fidelity account in the US before being transferred to a “registered Canadian securities dealer.”? There was no realized capital gains or dividend income received for those securities while they were held in the US.

If necessary, I can report each security on its own, but that’s more of a headache (although the worksheet does have a breakdown and includes categories like “max cost” “ending value” etc.).

Anyway, I’m sure you are busy but if you can find a moment to help with advice – or direct my inquiry to someone else who can – I would be grateful.

Answer

Hi XXXXXX

Thanks for the email and for being a reader of the blog, much appreciated.

First, I’m assuming you meant T1142 in your question. The T1141 would be for contributions to a foreign trust and not distributions from a foreign trust. Please make sure this form is also filed for the income and capital distributions as it carries high penalties.

Unfortunately, you’ll need to double report the securities. First, for the investments that you had beneficial interest in before they were moved to Canada, then for the investments after they were moved to Canada. I’m not aware of any rules that allows you to aggregate and combine the accounts for purposes of the T1135 reporting. However, once they are fully moved to Canada you should be able to continue with the consolidated simplified T1135 reporting.

This is why it’s really important to move your US investments to Canada as soon as you can to avoid additional T1135 reporting.

The complexity comes with the requirement to not only track the year end cost amount of the investments, but also the maximum cost amount. And, unlike US investments in a Canadian brokerage account, the US investments held in the US have to be listed separately and not allowable to be combined country by country.

Hope that helps and let me know if you have any other questions.

Cheers

Phil

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