T1135 gains/losses for returning former Canadian residents

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
Posts: 1
Joined: Tue Apr 05, 2022 1:40 am

T1135 gains/losses for returning former Canadian residents

Post by Pestbarfin »

We seem to have stumbled into an increasingly terrifying filing situation regarding the T1135. My spouse and I (both Can citizens) returned to Canada in early 2021 after ~6 years as Canadian non-residents (working as US residents). Before we left for the US in 2015 I opened a US-based US$ checking account and transferred ~10k Canadian funds. Over the years through accumulated income and an additional large transfer from Canada we amassed more than US$200k, which spanned a few additional bank accounts, some held only by my spouse or jointly. Stupidly, these funds were not segregated and the accounts were used for all our daily business. When we were returning to Canada I collected the bulk of these funds and exchanged US$ to Can$ in a large forex transfer just before we resumed our residency here. I'm only now coming to vaguely understand capital gains/losses and the mess we may be in.

As I understand it, as returning Canadians I'll need to file a T1135 for the full 2021 year. Most of these funds were held only in my name so it's possible that only I may need to file, but some income originated from my spouse and was not well tracked at all, and so...:

1) I likely exceed the CAN$250k detailed reporting threshold if the annual average exchange rate is used. But strangely, not if the rate on the maximum day is used, due to last-minute income and a transfer from my wife's personal account to mine. Can daily rates be used in this case?

2) Clearly I'm very confused about how to track capital gains/losses across the year/beyond. Whatever was still left in US$ when we immigrated was deemed as disposed and so would need to be assessed for gains from then to the end of the year? But from when would we need to track the origin of every US$ held just prior to the large forex? Some was income, but some originated in Canada years ago. It would be impossible to reconstruct ACB across this full 6 years. It might be doable from the start of 2021 but still a challenge. What is the obligation?

3) I had a small US group term life insurance plan with zero surrender value through my employer with an indeterminate ACB (without extensive input from accountants): would this type of policy typically be reportable on T1135?

Thank you in advance for any replies, and please excuse my total idiocy: I've learned a lot of horrible truths in the last 24 hours.
Post Reply