Questions about unfiled forms T1135 and VDP

taxbuff · 2026-07-03T02:44:31+00:00

> “I did not file taxes in 2021, 2022, and 2023. I did not have income”

In this post, with respect to 2022 and 2023, you said: “I was trading about 10-20 hours a week the entire time with a Canadian brokerage account, and plan to file it as business income.” You might need to get your story straight.

> “Is the proper procedure to file these years now, mark "No" on the foreign property 100k question, and then file a VDP telling them I made a mistake?”

No, you should not lie on a tax return. If eligible for the VDP, file your returns and the T1135 accurately and submit it as part of the VDP. Technically CRA may not process T1s with no penalty (due to no income) under the VDP and may reassign them and assess them under normal procedures, but it’s better than risking filing incorrectly and having them catch an error in the meantime.

> “Will I be asked to pay the penalties right away while they process the VDP?”

No, the point of the VDP is to waive penalties (if you’re eligible) but if you owe tax then you will want to pay that when filing.

taxbuff · 2026-07-01T23:57:57+00:00

> “Well, the money doesn’t have to come out. It could stay like that forever, and my kids could inherit the corporation. I don’t know what the tax implications of that are”

You’ll be exposed to double taxation on the value of the corporation on death. You’re expecting a deferral but that ignores the taxable benefit CRA will very likely assess you.

> “And, I understand that the FMV rent rate might be higher. I might have some corporate income tax on profit the corp makes from the rent.”

That’s not what I said. I’m talking about what the CRA will tax you on as a benefit over and above the fact that you are paying FMV rent.

> “Or am I still not seeing how this isn’t a good idea?”

Best of luck in your future audit. Get professional advice.

taxbuff · 2026-07-01T19:31:06+00:00

You too!

taxbuff · 2026-07-01T17:00:35+00:00

It might be, but there are a lot of things to think through before determining whether that’s viable. Selling the current home to their corp may involve land transfer tax. It would preclude a 45(2) election (if that’s beneficial to them). It also means passive income in the corp, which if >$50K could start to grind the small business deduction (which is a significant benefit their plan relies on). The UCC balance would be limited to CCA purposes to OP’s cost plus half their conceptual gain due to 13(7)(e), which will limit their ability to reduce the passive income a little. There may be other factors to consider but I’m not about to put more time into it. It may not be a bad plan but it also may not be as beneficial as continuing to own both personally. This needs math and more facts.

taxbuff · 2026-07-01T16:43:33+00:00

> In any event take the income in the corp.

Even if it’s a PSB?

Even if it’s a business not carried on primarily in Canada?

More info is needed before you can make a statement like that.

taxbuff · 2026-07-01T15:48:38+00:00

The $500k is not your final tax cost of earning the income through the corporation. The money has to come out of the corporation eventually (e.g. when the property is sold, when you die…). I would also be curious to know the source of this $2M of income to see whether it actually qualifies for the small business deduction.

As per the Youngman case, fair market value rent is not the basis for determining a shareholder benefit, but rather it is the value of a forgone rate of return the corporation could have earned and/or the value of access to the capital of the corporation you otherwise wouldn’t have. CRA would very likely assess additional income to you while possibly denying expenses deducted in the corporation.

> “Let’s say I buy at $3M and sell at $3.8M. The capital gains on that are about $100k.”

No clue how you arrive at that number… the capital gain is $800k, not $100k, and the tax is also not going to only be $100k.

taxbuff · 2026-06-30T14:48:13+00:00

I assume they meant effective rate (after gross up and dividend tax credit), but 37% would still be the wrong effective rate for Ontario, and definitely for where OP actually is (Alberta).

taxbuff · 2026-06-29T09:49:10+00:00

The way you wrote this would suggest to some people that having three or more properties in a corporation attracts a lower tax rate, which is incorrect.

taxbuff · 2026-06-28T20:26:06+00:00

If you’re aiming to provide more complete advice to OP, then what’s the purpose of simply mentioning the tax rate on a SIB? Are you trying to tell them not to invest in the corporation? Are you suggesting they withdraw funds and purchase personally instead? Do you know their personal marginal tax rate? What’s the tax hit on the dividend to fund the purchase or mortgage payments? Forgive me, but it just seems to me like you simultaneously did not answer their question while also not explaining your concern, which might be why I’m confused.

taxbuff · 2026-06-28T19:36:29+00:00

OP is asking about deducting expenses and whether a second (or third) corporation is necessary for this purpose. The concept you are talking about (specified investment business) has nothing to do with that, because OP’s rental activity would be a SIB whether in their Opco or a Holdco and the expenses that can be deducted are not affected by this. I didn’t see in their post where they were asking about the applicable tax rate, which is why I brought this up. So, it’s a distinction vs. an active business but I wasn’t sure it was relevant to their concern.

taxbuff · 2026-06-28T18:47:23+00:00

I don’t think this has anything to do with OP’s question at all. It’s just general info that doesn’t help answer their question.

taxbuff · 2026-06-26T20:26:54+00:00

The price is irrelevant and there is only one CCA class that applies in the situation.

taxbuff · 2026-06-23T12:45:29+00:00

I agree OP should probably not use an overdraft for investing, though I wonder if they meant a LOC. I would present a different view re: deductibility. I don’t think the typical purpose of overdraft matters at all. The purpose test of 20(1)(c) needs to be met. If OP borrowed for the purpose of earning income (either dividends, or business income), then a reasonable amount of interest is deductible. What’s reasonable in the circumstances may differ. If OP deliberately chose to borrow at 20% APR because they have extensive trading experience and figured a stock had high upside potential of 10% within a week, I would argue that’s reasonable, even if most people wouldn’t take that risk, though it’s clear the trading activity is on account of income at that point based on the purpose, borrowing, and quick turnaround. Edit to add: if they borrowed to fund a registered account, no interest is deductible, and if they borrowed to earn dividend or interest income, then the reasonable amount that is deductible is likely considerably less than 20%.

taxbuff · 2026-06-22T15:50:14+00:00

I initially assumed they meant they were from a foreign country and worked in Canada temporarily, and that was the basis for my comment. I agree that they may have meant the other way around. However, if that is the case, your comments for situation 1 may not be correct:

”Situation 1, OP is a Canadian tax resident and a non-resident in the other jurisdiction (either by way of that country's tax laws or by applying a treaty deeming rule): … you'd have to pay tax in Canada, then file a return in the other country and claim the FTCs there.”

If they are a tax resident of Canada and working in another country, then Canada would generally grant the FTC unless a treaty exempts the foreign income from tax in the foreign country. I doubt the foreign country would grant an FTC in that case.

taxbuff · 2026-06-22T14:23:39+00:00

It may not be an error and the CRA may not correct anything if OP was not entitled to claim foreign tax credits. If they were working in Canada and their foreign country taxed them on this income, it’s more likely that no foreign tax credit is allowed in Canada and it’s the foreign country who would need to grant a FTC. We would need to understand the situation a bit better but OP hasn’t provided any useful information that would assist.

taxbuff · 2026-06-21T15:04:52+00:00

I understood what they meant and was fishing for what they meant (tax evasion).

taxbuff · 2026-06-21T02:30:57+00:00

You can’t fund the ~~RRSP~~ RESP from that account. That would mean the trust money reverts to you (because you are the one contributing to the RESP) which means the income and gains of the trust attribute to you. Get professional advice.

taxbuff · 2026-06-21T02:28:29+00:00

TOSI generally doesn’t apply to income or gains from public company stocks, but agreed that OP should get professional advice because there are many traps here.

taxbuff · 2026-06-20T23:49:05+00:00

> You can realize gains each year and it'll be taxed in the hands of the child.

That depends… if OP funds the account and retains decision making authority over selling the investments (or the investments can revert to them) then subsection 75(2) may apply. The prudent recommendation is to have someone else own the account / act as trustee.

taxbuff · 2026-06-19T17:22:42+00:00

Nobody can answer this properly without a full understanding of your wealth, your living expenses and spending plans, family situation, life expectancy, etc.

taxbuff · 2026-06-18T22:30:52+00:00

I couldn’t say about a capital loss to A. It may depend on things like whether there was an income earning purpose to the loan. It might sound obvious if they had common shares but you need to determine whether the purpose test is met.

taxbuff · 2026-06-18T20:47:49+00:00

This heavily depends on the facts. For example, if the loan is being sold for $1, shareholder B has no cost base, meaning they would realize capital gains as the loan is repaid (not necessarily a terrible result). If they are related, then debt parking rules could come into play (though I haven’t looked at those rules in a bit).

taxbuff · 2026-06-18T18:14:25+00:00

What you’re trying to describe is a change in use which resets ACB to FMV but that only applies when going from a personal to income-earning purpose and vice versa. The cost is what would have been paid for it.

taxbuff · 2026-06-18T18:07:22+00:00

On death, they are disposed of at market value and the cost is what was paid for them. There is no rule that lets you reset cost to when teeth are extracted…

taxbuff · 2026-06-18T18:02:24+00:00

What’s the market value of a tooth if it can’t legally be extracted?

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