T1161 penalty and VDP

[chickkun]

I'm very late in doing my departure return, and I've just discovered the whopping $2,500 CAD fee for filing the T1161 form so late. :cry:

My questions are:

1. Would a successful application under the Voluntary Disclosure Program (VDP) lead to waiving of the T1161 penalty?

2. I'm assuming I need to file T1161 because I have about $40k in Canadian mutual funds. My wife has less than $10k in mutual funds, so she doesn't need to file T1161, correct? I'm hoping at least she can be spared the penalty.

3. If applying under VDP is a viable option, is it better to file by myself, with a tax lawyer, or a tax accountant? I've read that a tax lawyer may be the safest (see link below), but probably the most expensive!

Thanks for any feedback!

ck

[url=http://www.taxresolutions.ca/Atriclethree.html]
However, experts say it's very important to get your disclosure just right.

"I call it a 'miracle program' because although you've done wrong in the past it lets you make amends with the government, where if your
disclosure is accepted it gives you - right off the bat - an agreement that they will not charge you criminally or assess you with civil penalties for
your past actions," said Rhodes.

However, these appeals are handled by a special group at CRA and it's vital that you address your bid properly.

"When it comes to the CRA, it is always very important to present the right information to the right people on the right forms," said Rhodes.

"If you write in and request acceptance under the program, you can get the magic treatment. If you don't, you can get the worst treatment."

He suggested that's because from time to time the CRA might want to make an example of an errant taxpayer.

"Just say you wrote to the CRA said, 'Dear CRA, I'm sorry I messed up and I lied on my return, here's my true information.' I think they could
prosecute you criminally, and I think they would charge you civil penalties."

Although you can approach CRA yourself or through your accountant, Rhodes thinks it a good idea to get a tax lawyer onside.

"One of the main benefits of using a tax lawyer is that you are protected by solicitor-client privilege until you are ready to reveal yourself and
your errors to CRA," he pointed out.

"This is something you don't get in a client-accountant relationship."
[/url]

[nelsona]

1. No. This is not a case of failure to report income or pay tax, it is a case of failure to report the existence of certain investments, regardless of whether tax was due or not.

2. She does not need to file T1161 if her the reportable assets did not exceeed $25K value on departure date. You and she still need to report the deemed disposition of all property held at departure, with some property excluded.

3. See 1. You are going to owe this penalty.

[chickkun]

Thanks very much for the prompt feedback nelsona.
I guess I'll have to face the music and deal with the penalty.

[quote="nelsona"]
2. She does not need to file T1161 if her the reportable assets did not exceed $25K value on departure date. You and she still need to report the deemed disposition of all property held at departure, with some property excluded.
[/quote]

Relieved to hear my wife doesn't need to file T1161.

To clarify, to report the deemed disposition of all property held at departure (some property excluded), we each fill out a T1243?

[nelsona]

You fill out T1243 AND you report the gains and losses on Schedule 3.

Please review the Emigrants guide to make sure you are taking care of all your departure responsibilities.

[nelsona]

You'll need this sheet when filing your US taxes in years when you sell some or all of these deemed disposed assets.

[fordtaurus]

what? I did not file this form. My wife and myself both have more than $25k RRSP in Scotiaband, do I need to file this form? Our departure date was July 1st 2009.

Thanks a lot.

[nelsona]

RRSPs are excluded from this reporting. But please look over any other requirements in the emigrants guide to be sure you are meeting these.

[fordtaurus]

[quote="nelsona"]RRSPs are excluded from this reporting. But please look over any other requirements in the emigrants guide to be sure you are meeting these.[/quote]

Thanks. I did not read the form correctly, it says "not including the following properties" and I read "including". LOL

Thanks a lot

[chickkun]

[quote="nelsona"]You fill out T1243 AND you report the gains and losses on Schedule 3.
[/quote]

1. I'm a bit confused about how to handle Schedule 3.
I have T3's indicating capital gains/losses, and Schedule 3 has a specific place for entering the gains/losses from T3 slips. But now I want to report the gains/losses from the deemed dispositions of the very same securities that generated the T3's. Doesn't seem right to report gain/loss in two separate places...should I ignore the instructions to report the gain/loss on the T3's?

2. I've been trying to use Ufile for the emigrant return.
Noticed a few oddities, not sure if it's because I'm not using the program properly or whether Ufile is not up to speed for emigrant returns.
a. It uses the T1 "Income Tax and Benefit Return for Non-Residents and Deemed Residents of Canada". But it's clearly stated in the emigrant guide to use the regular T1 of the province from where you emigrated. Since Ufile is using the non-resident T1 form, it skips over all provincial calculations.
b. Ufile doesn’t prompt for T1161 nor T1243.
Anybody have a recommendation for which software best handles emigrant returns, or is good 'ol pencil and eraser the way to go?

[nelsona]

1. Your T3's only represent certain distributions you got. For any sales you made, and certainly for any deemd dispositions you incurred, these are separate. T3's do not typically report sales, thus the need to report them on a separate line, along with your demmed dispositions.

2. Ufile works perfectly for departure returns. You are using the wrong settings. You should be stating yourself as a resident of whatever province you left, and puttinga departure date. You are NOT a non-resident for 2009, you are a departing resident.

[chickkun]

Thanks for the continuing feedback nelsona.

1. Ok, that explains the need to report T3 cap gains/losses separately from deemed disposition cap gains/losses. One more question about T3 entry on departure returns: do we need to pro-rate gains/losses, dividends, and "other income" amounts on the slips (similar to how tax credits are pro-rated)?
For example, if I left Canada on June 30, 2009, and got a year-end T3 with an "other income" amount of $100, do I report $50 on my departure return and arrange to pay Part XIII tax on the other $50 separately? This, of course, is in the case where the financial institution was not informed to withhold the appropriate amounts at the source.

2. Indeed, I was using the wrong settings. I was thrown by the question "Enter the province or territory of residence on Dec 31". Since I was not a resident of any province, I thought it was correct to answer as non-resident from the pull-down menu. The right way to do it is to put in your last province of residence and later check off "Immigrant, emigrant or non resident taxpayer" later in the interview setup.
Still no T1161 or T1243 pops up in the process, so it appears those need to be prepared outside of Ufile.

[nelsona]

1. Once you leave canada, NONE of the cap gains or interst are reportable or taxable in canada. There is nothing to prorate. You either received money as a Cdn resident (reportable and taxable) or you received it asa non-resident (not reportable or flat-taxed dividend).

The only credits/deductions that are pro-rated are those not specifically tied to expenses.

2. I'm pretty sure all the required files will appear once you check appropriate boxes. If Ufile can't provide a form it usually tells you so specifically. You won't be netfiling, of course, but ufile should produde all you need, or tell you which file you need to add.

[chickkun]

1. Problem is I didn't notify financial institutions of my departure, so T3's are showing dividends and other amounts paid to me as if I was resident for the whole year. And since you mentioned interest, I have T5's reporting interest paid to me for the whole year. I suppose if I had done things right the bank would've send a T5 for interest paid during the portion I was a resident, and an NR4 for the remainder of the year when I was a non-resident? But since it hasn't turned out that way, I wonder how to handle the accounting...

2. Hmmm...I'm still not getting T1161 and T1243 to come out. I wonder what I'm missing. Searching in Ufile help only turns up a brief reference to T1161, but nothing about what settings are needed to trigger it. No reference to T1243 in Ufile help. A google search only hit this bit about someone with a similar T1161 experience with Ufile:
http://www.centa.com/article.php/UsCaWe ... 03831.html
"...we used ufile.ca to do our Canadian taxes. We have a house in Canada that we
kept with the intent of renting it out, and were unaware of the requirement to file a T1161 until we began working on our 2005 taxes with the assistance of an accountant..."
I just emailed Ufile support, hopefully they can shed some light.

[nelsona]

1. As I said, your account statements are pretty clear as to when you recieved the income. So there is nothing to prorate. You report the pre-departure income one way, the post another (if at all). You can figure it out.
If it puts your mind at ease, evn if you had reported that you had left, you would have still only got one sttaement from the broker, proabaly an NR form. You would still have to divvy up the pre-/post-dparture income.

Like I said, you can do it.

[nelsona]

2. You may be right about ufile and the T1243 and T1161 forms. You will be able to add these to your paper return.