⚠ T1135 Non-Filing Penalty: CAD 2,500 Per Year + 5% of Assets
Canadian residents with foreign property exceeding CAD 100,000 must file Form T1135 annually. Failure to file: CAD 2,500 per month (up to CAD 12,000) + 5% of highest unreported asset value if wilful. HK bank accounts, HK company shares, and HK real property all count.
Common Challenges
Departure Tax
When a Canadian resident leaves Canada (e.g., to work in HK), they are deemed to have disposed of all their worldwide assets at fair market value on the departure date — triggering Canadian CGT on unrealised gains.
⚠ Risk: HK company shares with accrued gains → departure tax on gains even without cash received
T1135 Foreign Reporting
Canadian residents with foreign assets exceeding CAD 100,000 must file T1135. HK bank accounts, HK company shares, and HK real property all qualify. Penalties for late filing are severe.
⚠ Risk: Non-filing → CAD 2,500/month penalty + 5% of asset value if wilful
FAPI on HK Companies
Foreign Accrual Property Income (FAPI) rules attribute passive income from HK companies to Canadian shareholders for immediate Canadian taxation — similar to US GILTI.
⚠ Risk: HK holding company passive income → attributed to Canadian shareholder annually
Repatriation Planning
Dividends from a HK company to a Canadian shareholder attract 25% Canadian WHT (reduced to 15% under Canada–HK Tax Agreement). Planning the dividend timing and amount is critical.
⚠ Risk: No treaty analysis → paying 25% vs 15% WHT on repatriated HK profits
Who Is This For?
Canadians living and working in HK
Canadian citizens or residents employed in HK managing their CRA obligations.
Canadians departing to HK
Individuals planning to leave Canada for HK who need departure tax planning.
Canadian companies with HK subsidiaries
Canadian businesses with HK operations navigating FAPI and treaty issues.
HK residents returning to Canada
Individuals moving back to Canada who need to plan their HK asset position.
What We Do
Departure Tax Planning
Assess the deemed disposition on departure from Canada and plan timing, asset structure, and any available elections to minimise departure tax.
Including eligible property elections
T1135 & T106 Preparation
Prepare CRA foreign reporting forms T1135 (foreign property) and T106 (transfer pricing for transactions with related non-residents).
Annual CRA compliance
FAPI Analysis
Identify whether your HK company's income constitutes FAPI and advise on structuring to qualify for the active business income exclusion.
Per ITA s.95 FAPI rules
WHT Planning — Canada–HK
Apply the Canada–HK Tax Agreement to minimise WHT on dividends, interest, and royalties between HK and Canadian entities.
Tax Agreement Articles 10-12 analysis
How It Works
Canadian Tax Status Review
1 weekAssess Canadian residency, foreign reporting obligations, and FAPI exposure.
Planning Recommendations
1 weekDevelop departure or repatriation plan with CRA compliance roadmap.
Filing & Compliance
2-4 weeksPrepare T1135, T106, and any required tax returns.
Annual Compliance
AnnualOngoing CRA filings and monitoring of Canadian tax obligations.
Case Studies
Canadian executive moving to HK — departure tax planning
- •HK company shares with CAD 1.2M accrued gain
- •Departure date timed with asset restructuring
- •Eligible property election deferred CAD 800K of gain
- •T1135 filed for remaining Canadian-held foreign property
“Timed our departure perfectly. The departure tax was a fraction of what it would have been.”
Canadian company — HK subsidiary FAPI review
- •HK subsidiary had significant investment income
- •Investment activities restructured to qualify as active business
- •FAPI attribution reduced from CAD 1.3M to CAD 200K
- •T106 transfer pricing documentation prepared
“Restructuring the HK subsidiary's activities eliminated almost all the FAPI exposure.”
Frequently Asked Questions
What is departure tax in Canada and does it apply to HK company shares?
When a Canadian tax resident emigrates (e.g., moves to HK), they are deemed to have disposed of all their property at fair market value on the date of departure. If you own HK company shares with accrued gains, those gains are taxed as Canadian capital gains in your final Canadian return — at 50% inclusion rate, up to 27% effective rate.
Do I still need to file a Canadian tax return while living in HK?
If you are a non-resident of Canada, you file a Canadian return only if you have Canadian-source income (rental, employment from Canadian employer, RRSP withdrawals, CPP). If you have no Canadian-source income and are non-resident, you may not need to file — but should confirm your non-resident status was properly established on departure.
What is the T1135 form and what HK assets must be reported?
Form T1135 (Foreign Income Verification Statement) must be filed by Canadian residents with "specified foreign property" exceeding CAD 100,000 at any point in the year. This includes HK bank accounts, HK company shares (if not a controlled subsidiary), HK real property, and HK-listed securities. RRSP, pension plans, and property used in an active business are excluded.
What is FAPI and how does it affect HK company ownership?
FAPI (Foreign Accrual Property Income) includes passive income earned by a "controlled foreign affiliate" — a foreign company ≥10% owned by the Canadian taxpayer. Passive income (interest, dividends, rents, royalties) of the HK company is attributed to the Canadian shareholder and taxed in Canada at their marginal rate. Active business income is excluded from FAPI.
Does Canada have a tax agreement with Hong Kong?
Yes — the Canada–Hong Kong Tax Agreement (2013) provides reduced WHT rates: 5% on dividends (25%+ corporate shareholding), 15% for other dividends, 10% on interest, and 10% on royalties. Without the agreement, Canada's standard WHT rate is 25% on all payments.
What happens to my RRSP if I move to Hong Kong?
Your RRSP can remain in Canada after you become a non-resident. Withdrawals while non-resident attract 25% non-resident WHT (reduced to 15% under the Canada–HK Tax Agreement). HK does not tax RRSP withdrawals (HK territorial system). You cannot continue contributing to RRSP once you lose Canadian residence (no Canadian earned income).
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