Do Canadians Have to File a T1135 for a Foreign Rental Property?

If you live in Ontario and own a condo, apartment or house in another country that you rent out, you may wonder whether the CRA expects a separate foreign reporting form on top of your regular return.

This article explains how the rules generally work for foreign rental property, what the $100,000 test means, when the form is due and how foreign tax paid fits in. Mixed-use properties and treaty questions turn on the facts, so confirm your situation with a lawyer or accountant.

Who has to file Form T1135

Resident individuals, corporations and certain trusts and partnerships must file Form T1135 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 fair market value. Once you are over the threshold, all specified foreign property held during the year is reported, even if some was sold before year-end.

Does a rental property abroad count?

Specified foreign property is defined in subsection 233.3(1) of the Income Tax Act and excludes personal-use property as defined in section 54. The CRA reads personal-use as primarily meaning more than 50% personal use.

Foreign property that is mainly rented out for profit is not personal-use property, so its entire cost is reported. A rental condo abroad that you rent out most of the time is therefore generally counted toward the $100,000 threshold.

A property used partly by you and partly by tenants is a question of fact. If you stay in it for part of the year, the split between personal and rental use is worth reviewing with an adviser.

Thresholds, reporting detail and due date

Simplified reporting (Part A) is available where the total cost of specified foreign property was less than $250,000 throughout the year. At $250,000 or more at any point, detailed Part B reporting is required.

The T1135 is due on or before the due date of the 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.

• Add up the cost of all your specified foreign property, not only the rental.
• Include property you sold during the year if you were over the threshold.
• Use the cost of the property, not what it is worth today.

Foreign rental income and foreign tax

Filing the T1135 is separate from reporting the income. Rental income from real estate is generally reported on Form T776, and net income or loss goes to line 12600 of the T1 return.

If you paid tax to another country on foreign-source income, you complete Form T2209 and enter line 12 on line 40500. For each country, the credit is generally the lesser of the foreign income tax actually paid and the Canadian tax otherwise payable on net income from that country.

Foreign income and tax must be converted to Canadian dollars using the Bank of Canada exchange rate in effect on the day the amounts arose. For multiple payments over the year, the CRA directs use of the average annual rate. Provincial residents outside Quebec also complete Form T2036 for the provincial credit. A tax treaty can change the result, so ask your adviser about the country involved.

What to do next

• Gather the purchase documents to confirm what the property cost, in the original currency and in Canadian dollars.
• List every other foreign asset you hold, such as foreign accounts or shares, since they may count too.
• Track how many days the property was rented and how many days you used it personally.
• Collect foreign tax receipts and rental statements.
• Confirm your filing deadline: April 30 or June 15 depending on your situation.
• Ask a lawyer or accountant to confirm whether your property is specified foreign property.

If you realize you should have filed in earlier years, get advice before doing anything else. Penalties can be significant.

Frequently asked questions