Specified Foreign Property: Does Your Home Abroad Count in Ontario?

If you own a home, condo or other asset outside Canada, you may wonder whether you have to report it to the Canada Revenue Agency. The answer often turns on how you use the property.

This article explains the T1135 reporting rule for Canadian residents, the personal-use exclusion, and what happens if you rent the property out. Your facts decide the result, so check with an accountant or lawyer.

When Form T1135 is required

Canadian residents, corporations and certain trusts must file Form T1135, Foreign Income Verification Statement, if they own specified foreign property costing more than $100,000 at any time in the year.

The threshold is based on cost amount, which is generally the adjusted cost base, not fair market value. A property that has grown in value may still be under the threshold if your cost was lower.

The personal-use exclusion

Specified foreign property does not include personal-use property as defined in section 54, such as a vacation home used mainly as a personal residence. It also excludes property used or held exclusively in carrying on an active business.

So a home abroad that your family uses for holidays is generally not reported on the T1135. Rental use changes that analysis.

Vacation home or rental abroad

In the CRA's Florida condo example, a condo used only as a vacation home is personal-use property and is not reported on the T1135. The same condo rented for eight months with a reasonable expectation of profit is specified foreign property and must be reported.

Part-year rental only to recover expenses, with no expectation of profit, is treated as personal use.

Filing details and penalties

The simplified Part A applies if the total cost was more than $100,000 but less than $250,000 throughout the year, and the detailed Part B applies at $250,000 or more. The form is due on the same date as your income tax return.

The penalty for failing to file is $25 per day for up to 100 days, with a minimum of $100 and a maximum of $2,500. A knowing or grossly negligent failure is $500 per month for up to 24 months, to a maximum of $12,000. The due-diligence exception in section 233.5 does not apply to the T1135.

There is also a longer reassessment window. The CRA's reassessment period is extended by three years if you failed to report income from specified foreign property and Form T1135 was not filed, was filed late, or was filed inaccurately.

Foreign income, tax credits and what to do next

Canadian residents must report all income earned from foreign property, whatever its cost amount. Falling below the T1135 threshold does not exempt that income from tax.

If you paid foreign tax on income you reported, you may be able to claim a federal foreign tax credit on line 40500 using Form T2209. Under the Canada–U.S. Tax Convention, U.S. real property income and gains may be taxed in the U.S., and Canada gives a deduction from Canadian tax for U.S. income tax paid on U.S.-source income. Rules of the other country are outside this article, so a local adviser may be needed.

• Write down the cost of each foreign property and the year you bought it.
• Note how you used each property, including months rented and whether you expected a profit.
• Keep records of foreign tax paid and any foreign tax returns.
• Ask an accountant whether a T1135 is required for the year.
• If you missed a filing, get advice promptly.

Frequently asked questions