T1135 Foreign Property Reporting for Ontario Residents

If you live in Ontario and own a condo abroad, a rental house, shares in a foreign company or an overseas account, you may have heard about Form T1135. Its full name is the Foreign Income Verification Statement, and it is easy to miss, so it is worth checking each year whether your foreign property passes the cost threshold.

This article explains when the form is required, how the $100,000 threshold works, when it is due, and what happens if it is not filed. It is general information, and a lawyer or accountant can confirm how it applies to your property.

When 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, and not on fair market value. A property that has grown in value may still be under the threshold, and a property that has dropped in value may still be over it.

There are two versions. The simplified Part A applies if the total cost was more than $100,000 but less than $250,000 throughout the year. The detailed Part B applies at $250,000 or more.

What counts, and what does not

Specified foreign property does not include personal-use property, 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.

The CRA's Florida condo example shows how use changes the answer:

• A condo used only as a vacation home is personal-use property and is not reported on 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.

Whether you had a reasonable expectation of profit depends on the facts, so keep records of rental rates, expenses and how you actually used the property.

Deadlines

Form T1135 is due on the same date as the income tax return. That is on or before April 30 for most individuals, on or before June 15 for self-employed persons, and no later than six months after the end of the fiscal period for corporations.

Penalties and extended review period

The due-diligence exception in section 233.5 does not apply to T1135.

There is another consequence. 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 and tax paid abroad

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

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, and Form T2036 for the provincial credit. For each country, the federal credit is generally the lesser of the foreign income tax you actually paid and the Canadian tax otherwise payable on your net income from that country.

Under the Canada–U.S. Tax Convention, income a Canadian resident earns from real property in the U.S. and gains from selling it 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. U.S. filing and withholding rules are separate, so speak with a U.S. tax adviser about them.

What to do next

• List every property or account outside Canada and note the date and cost of each, in Canadian dollars.
• Decide which items are personal-use property and which are held for income.
• Add up the cost of specified foreign property to see whether it passes $100,000 at any time in the year.
• Keep foreign tax slips and returns in case the CRA asks for them.
• If you missed a past year, speak with a lawyer or accountant promptly, since penalties grow with time.

Frequently asked questions