# t1135 on joint offshore account



## horsy (Aug 6, 2016)

Hello ,
I have been resident in Canada from around 10 years. During this period and when my father was alive he created a joint account in both our name and placed all his money inside. When he died my mother and I took the money from that account and created a joint account in our names where we deposited the balance of the old account. The intention was to make sure that in case of death of a medical emergency facing the living parent , somebody can have access to the fund. We are an oriental family with tightly close to each other. I have always considered that what my father posesses should belong to my mother till she dies. My mother solely operate the joint account and withdraw what she need to live. I never made any withdrawal and never brought any of that money to Canada.I solely made some contributions to the joint account from my Canadian Banks. The aggregate sum of all my contribution is slighly above 100 000 CAD over a 10 years periods , but part of my contribution was spent on some real estate renovations. I never filled a T1135 because in my point of view I didn’t contribute enough to it , never use it and might never use it if my mother live along to spend it all. In case CRA knew about that offshore account.
My concerns are:
-	Will CRA be convinced that all this money belong to my mother or I will get challenged and asked for proofs on my claims. What will CRA propose as the default split. Can the money my mother is using to her basic expenses be taxed by CRA, knowing my mother is not a Canadian citizen nor a PR , nor a resident of Canada
-	What kind of proof does CRA needs? If the sum of my whole contributions from Canadian banks is less than 100 000 CAD would that be enough? (I live in Canada since I was 28 years old)
-	Do I have to keep my bank statement since My banks doesn’t store transactions for more than 7 years? Can CRA ask for non reasonable proofs I cannot gather ? 
-	If I am willing to close my account and open a new account with the name of my mother enough to prove that indeed I do not own any of that money ? If so can I still get a power of attorney to operate the fund when my mother dies? 
-	In case I am audited will I be facing a difficult case? Will that have to go to court and involves high legal fees, or it can be settled by CRA officers?


----------



## Market Lost (Jul 27, 2016)

The contribution rules are clear, if you put the money in the account, then it is yours. Not only does this count for the T1135, but also for the income it produces as well. If you haven't been claiming it, then you need to talk to a tax adviser to determine your options. In other words, CRA isn't going to allow you to split anything you place in the account with your mother. Note, that the original monies in the account are from your father's estate, so they shouldn't be taken into account.

-If the money is outside Canada, then your mother isn't really an issue since she isn't a resident.

-It's not the total that you contribute, it's the total that you have in the account that is yours. If the amount you have in the account is less than $100K then there are no issues. You would just use the bank balance to show that the account is less than $100K. If I'm reading it right, your mother has been spending money, so it's likely you actually don't have close to $100K.

-It doesn't matter if the money is only in your mother's name or not, the contributions are yours.

-What are you doing to be audited?


----------



## AltaRed (Jun 8, 2009)

The paper trail is what is important. The key is the original balance was firstly your mother's funds. You became a joint owner with no beneficial interest other than presumably JTWROS where the proceeds of the account would pass to you in event of your mother's death. What is not clear is the combination of your contributions versus the original balance of the account, and the sum of withdrawals (the funds for RE repairs and your mother's regular withdrawals). 

The question is whether your mother is withdrawing from HER portion of the account, or is withdrawing from commingled funds (including a portion of your contributions).. and what is currently your share of the account. As Market Lost said, if your share of the account is over $100k CAD, you need to fill out a T1135 for your share of the account. What is also evidence is how much of the income of the account that you have been declaring on your Canadian tax return? That would go part way to determine what share of the account is yours. Tell us that and we may have more guidance based on your response. 

It seems to me the evidence of actions over the past years could show that you are essentially funding a portion of your mother's living expenses and it could be argued that the withdrawals are from commingled funds. But I am no tax accountant.


----------



## horsy (Aug 6, 2016)

Thank you very much for your valuable responses. 

As AltaRed pointed correctly the purpose of this whole schema is to create a JTWROS where the proceeds of the account would pass to me in the event of my mother's death , tax evasion was never in my mind. I am not under any kind of audit . However my main concern is that in case the somehow low likelihood of being audited become true , I do not want to invite CRA to investigate and account whose 80% of the fund are supplied by my mother. Because for a lot of reason CRA might not get it right and it will end tax my mother money and that will affect her standard of living because she will pay of my behalf. The only proof I have is that my father was a bank employee during 40 years of his live , I only worked few years in my native country as business analyst before coming to Canada so by no means I could be the one who contributed to the original funds. I can also proof with my banks statement of account that in my last 7 out of 10 years I only contributed to that funds maybe a little bit less than 100 000 dollars . I couldn't get my bank statement of the first 3 years since the bank doesn't have them anymore. 
My feeling that things will not be easy for me since we didn't do any inheritance procedure , so CRA might need proves that all my father inheritance went to his wife and I didn't get any of it. that would be hard to proof since we do not have any official document to back the claim. Another concern is that my aggregated contributions (initial cost) generated some interest , meaning that what I own in the fund (interest + initial cost) is around 120000. Are the interest taken into account when checking if the amount is above 100 000 ? 
In case no better solution is found , I am starting contemplating the idea closing the account and opening a new one exclusively for my mother , I will try to get a power of attorney if it doesn't have any tax implication on the account , if it has I will drop that option. 
In case I need a professional advice regarding my issue , who is the best party to do it ? a tax accountant or a tax lawyer.

Thank you so much .


----------



## AltaRed (Jun 8, 2009)

You have not answered the key question asked - how much (percentage of account) of the interest on this account have you been declaring on your Canadian tax return? Perhaps another important question is to put into perspective the impact of your contributions to this account over the years? What was the size of the account when it was established with your mother and what is its size today? The issue may not be that relevant if the account was originally $500k or $1million in size to begin with. Presumably your mother has been declaring her share of interest (if necessary) on her tax returns in her country of residence.


----------



## horsy (Aug 6, 2016)

to Altared: 

I never filled a T1135 so nothing has been declared , what is complicating the matter further is that my native far east country doesn't have a tax system based on the declaration like in Canada. Interest on bank accounts are withdrawn by the bank itself and anonymously transferred to the tax authority (no t5 equivalent) . So my mother doesn't have a tax declaration where she declares the whole interests to here. That would have been very helpful document if it exists but unfortunately it doesn't.


----------



## horsy (Aug 6, 2016)

I never declared any income on that money. my total contributions are 1/5 , if you put the interest rate generated by my portion of the contribution.


----------



## AltaRed (Jun 8, 2009)

You are supposed to pay tax on your worldwide income, so the interest earned on your share of the income should have been disclosed on your Canadian tax return on an annual basis. Given that has not occurred, and given that it appears you have not benefitted from anything in this account (to date), it could be argued that your contributions are monetary gifts to your mother. That is the position I would take in this matter...provided you never withdraw money yourself from the account.

The wrinkle in this is the account has your name on it as well. Just the sort of thing CRA might consider as an 'offshore tax haven from which you are hiding both assets and income'. It would really be best if you were NOT a joint account holder and that might still be a worthwhile endeavor to fix.

Added: Not relevant for this thread, but for the record, whether a T1135 needs to be filed or not is not relevant to the need to declare worldwide income. Lots of people have ex-Canada holdings and they declare their worldwide income.....regardless of needing to file a T1135 or not.


----------



## kcowan (Jul 1, 2010)

AltaRed said:


> Given that has not occurred, and given that it appears you have not benefitted from anything in this account (to date), it could be argued that your contributions are monetary gifts to your mother. That is the position I would take in this matter...provided you never withdraw money yourself from the account...


Yes and there would have to be evidence that his mother declared 100% of the earnings from the account in her country.


----------



## horsy (Aug 6, 2016)

Thank you so much for you insights. The fact that I never bring any of that money to Canada and I cannot have spend any of it outside Canada since I am a full time bank employee in Canada and I only visit my country for few weeks per year might well enhance my arguing position. Under similar circumstance chances that I will not be considered a beneficial owner . But I think that you are right by proposing to remove my name from that joint account , you never know how a tax audit can evolve and as you have noticed I am dealing with a lot of parameters that can give birth to a troublesome formula. And as you have deduced the money is placed in a low jurisdiction tax and protected by a bank secrecy system so yes it is a tax heaven by definition. But please note that It was never my intention to hide funds overseas since I am very well aware of the might of Canada revenue agency and the associated penalties. My main driver was the best of my family and it happen that I was born in a tax heaven and I didn't grow up in Canada so it took time before coming acquainted with Canada complex tax system . 

So I am inclined to go by your advice and remove my name from that account and let my mother enjoy her peaceful retirement. Once this money is mine I will find a way to declare it as part of my revenue. My final question to you is does keeping a power of attorney over that account have a tax implication over the account? 

Thank you ...


----------



## horsy (Aug 6, 2016)

It is well known fact and CRA should know very well that in the country where the account is opened residents do not make tax declaration.
Banks withdraw a certain percentage of the income and deliver it anonymously to the tax authority. If the tax system was similar to Canada. 
more then half the bottle would have been won if my mother declared the whole income on her tax return sheet. and I would be in a very deep trouble 
if partially or none of that income figured on her tax return sheet. Because that means beyond doubt that I own part of the whole of the fund money. 
So unfortunately how my mother declares her tax to the local authorities is totally irrelevant to this situation. If not I wouldn't have worried at all how to prove that this money is her.


----------



## AltaRed (Jun 8, 2009)

horsy said:


> My final question to you is does keeping a power of attorney over that account have a tax implication over the account?
> 
> Thank you ...


No. It simply gives you the right to do all the things your mother can do in that account. The POA would have be be done with the bank and jurisdiction where the bank account is.

Added much later: One other thought I had on this matter. If your contributions to the account are less than the withdrawals being made by your mother, i.e. the account balance is decreasing on a somewhat regular basis, it would seem to me that CRA should have no concerns. It would be obvious that your mother is drawing the account down for her own needs and you are simply gifting money to her to support her to some degree. Having a joint account is simply a matter of convenience. If this is indeed the case, I wouldn't worry about a thing...and leave things just the way they are.


----------

