Is Your Foreign Vacation Home a Specified Foreign Property?

If you own a condo or house abroad that you use for holidays, you may have heard that personal-use property does not have to be reported on Form T1135. That is partly true, but the exclusion depends on how the property is actually used, not on what you call it.

This article explains the cost test, how the personal-use exclusion works, what changes if you rent the place out, and what can happen if a required form is filed late or not at all. Your own facts decide the answer, so a lawyer or accountant can confirm your situation.

What Form T1135 is and who must file it

Form T1135 is the Foreign Income Verification Statement. Resident individuals, corporations and certain trusts and partnerships must file it if the total cost of their specified foreign property was more than $100,000 at any time in the year.

The test is based on cost, not on what the property is worth today. Once you are over the threshold, you report all specified foreign property you held during the year, even property you sold before year-end.

The form is due on or before the due date of your income tax return. That is April 30 for most individuals, and June 15 for self-employed individuals or those whose spouse or common-law partner carried on a business.

How the personal-use exclusion works

Specified foreign property is defined in subsection 233.3(1) of the Income Tax Act, and the definition excludes personal-use property as defined in section 54. This is the source of the idea that a vacation home does not need to be reported.

The CRA reads personal-use as primarily meaning more than 50% personal use. So the question is not whether you own a vacation home, but how it is actually used, and that depends on your facts.

• A property that you and your family use mainly for personal enjoyment is the kind of property the exclusion is aimed at.
• A property that is mainly rented out for profit is not personal-use property, so its entire cost is reported.
• A property with mixed use is a question of fact, and you should keep records of how many days it was used personally and how many it was rented.

Comparing common situations

Remember that the $100,000 threshold looks at the total cost of all your specified foreign property together. A vacation home that is excluded does not count, but a rented foreign property or foreign investments might push you over the line.

Simplified or detailed reporting, and the cost of getting it wrong

If the total cost of your specified foreign property was less than $250,000 throughout the year, simplified reporting under Part A is available. At $250,000 or more at any point, detailed Part B reporting is required.

The late-filing penalty under subsection 162(7) is $25 per day for up to 100 days, with a minimum of $100 and a maximum of $2,500. Knowing or grossly negligent failure can bring $500 per month for up to 24 months (maximum $12,000), or $1,000 per month for up to 24 months (maximum $24,000) after a CRA demand.

A further penalty of 5% of the relevant cost applies after 24 months, and a false statement or omission can bring the greater of $24,000 or 5% of the relevant amount. The due diligence exception in section 233.5 does not apply to T1135 penalties, so a good-faith mistake does not automatically remove them.

If you realize you omitted information or did not file, the Voluntary Disclosures Program may be available, but you must file a valid disclosure to qualify.

What to do next

• Write down what you paid for the foreign property, including the currency and the date, and the cost of any other foreign property you hold.
• Keep a simple calendar of personal-use days and rental days for each year.
• Add up the total cost of all specified foreign property and compare it with $100,000 and $250,000.
• Check the filing date for your return, since T1135 is due on the same date.
• If you think a past year was missed, speak to a lawyer or accountant soon to talk through your options, including whether the Voluntary Disclosures Program fits.

Frequently asked questions