T1135 Note to CRA – foreign income reporting doesn’t need to be a foreign concept
Our Canada Revenue Agency (CRA) has been guilty of many things but on the top of my personal list are cryptic requirements and one example is: T1135 CRA foreign income reporting requirements.
Can this be any more confusing?
Read on to help you demystify our CRA foreign income reporting requirements!
T1135 CRA Foreign Income Reporting Details
To help demystify these requirements for my own purposes, I’ve broken down the rules and exemptions into some questions and answers.
These Q&As are not meant to be inclusive of all tax situations, it is not advice, but they should steer you in the direction for further professional consultation. Which leads me to this: I encourage you to consult a professional any time you are unsure of your tax situation.
I would like to thank Mark Goodfield who is the tax partner and the managing partner of Cunningham LLP in Toronto and writes a great resource, a blog called The Blunt Bean Counter for providing some general feedback on my post today.
What does the tax law say about T1135 CRA foreign income reporting anyhow?
At the time of tax filing, Canadian individuals, corporations, partnerships and trusts need to report on the “property” held outside Canada.
What does “property” mean?
It can mean many things, here are a few:
- Money held in foreign bank accounts
- Shares in non-Canadian companies held with a Canadian broker, such as U.S. stocks
- Shares of Canadian companies held with a foreign broker
- Land and buildings held outside Canada, such as a rental property in the U.S.
- Debts owed to you by non-Canadian residents, such as a mortgage loan
- Precious metals, gold certifications or futures held outside Canada
What are the reporting criteria?
If the total cost amount (Note: not fair market value) of property held outside Canada exceeds more than $100,000 CDN at any time during the tax year, you need to file a form at tax filing. The form you need to file is a T1135 form called Foreign Income Verification Statement.
Q1: My house is worth over $100,000 CDN but my investments are not. Do I even need to worry about this requirement?
Q2: I have a self-directed RRSP that I keep my U.S. stocks like Coca-Cola (KO:US) in. These shares are now worth about $105,000 CDN. Do I need to worry about this requirement?
U.S. stocks inside an RRSP are exempt from the foreign income reporting requirement.
Q3: I keep my U.S. stocks like Procter and Gamble (PG:US) and my U.S.-listed Exchange Traded Funds (ETFs) like VTI in my TFSA. The values of these U.S. holdings are worth about $110,000 CDN. Do I need to worry about this requirement?
Securities held in these registered Canadian accounts are exempt from foreign income reporting: RRSPs, TFSAs, RESPs, RRIFs, LIRAs, LRIFs and RPPs.
Q4: I own a joint USD bank account with my wife, we use it for travelling to the U.S. every winter and abroad for a few months. It has about $15,000 USD in it at all times, sometimes up to $20,000 USD in it. Do I need to worry about this requirement?
However, keep in mind the CRA considers each person’s foreign ownership to be based on the amount contributed by each person. So as long as you don’t surpass the $100,000 CDN threshold individually, you’re fine.
Q5: I just bought a condo in Florida. It cost me about $150,000 USD and it’s probably worth closer to $175,000 USD now. Do I need to worry about this requirement?
Yes and No.
Yes, if you plan to rent out the condo when you’re not in Florida. CRA requires you to report foreign income when you expect a profit or income from a foreign property that is not intended primarily for personal use. Even if you live in the condo during the entire Canadian winter, but decide to rent it out for the other 6-9 months, you need to complete a T1135 form at the time of tax filing.
No, if you plan to use the condo primarily for personal use. For example, you are there for the majority of the year and you rarely rent it out. If and when you do rent it out, it’s only to family and their friends. CRA does not require you to report foreign income when you or someone else related to you uses the foreign property only for personal use and enjoyment.
In either case, I think it would be very smart to keep good bookkeeping records for as long as you own the foreign property to justify your intentions.
Q6: I keep all my U.S.-listed ETFs like VTI and VWO in my taxable account. I have $90,000 CDN in this non-registered account but I have about $12,000 USD in a bank account. Do I need to worry about this requirement?
With the $90,000 CDN held in your U.S.-listed ETFs and the $12,000 USD sitting in a bank account, you’re over the $100,000 CDN threshold for foreign property.
You need to complete a T1135 form at the time of tax filing.
Q7: I bought a house with my brother overseas this year, he lives in the UK. He didn’t have money saved up so I co-signed the mortgage with him. My brother owes me $80,000 CDN on the house – he is going to be paying me back over the next 10 years. Do I need to worry about this requirement?
In this case you do not need to report the debt. However, indebtedness owed to you by non-Canadian residents is subject to foreign income reporting requirements but since your brother in the UK owes you $80,000 CDN, the mortgage loan is under the $100,000 CDN threshold; you’re off the hook.
Your brother however, based on his debt to you is certainly not and he needs to report.
Q8: I own a few Canadian ETFs; one of them is the ETF XSP. Buying XSP cost me $105,000 CDN. I own XSP outside my RRSP and TFSA in an unregistered account. Do I need to worry about this requirement?
While this is a Canadian security that holds U.S.-listed stocks, because XSP is a Canadian-domiciled trust, then you not need to worry about the foreign property requirement.
This is a good reason to own Canadian-listed ETFs or securities that own foreign assets – you don’t need to worry about foreign income reporting at this time.
T1135 CRA Foreign Income Reporting Summary
These Q&As provided above could relate to your situation but in the end they are just examples.
I wrote this article to start wrapping my head about the overly complex issue of foreign income reporting and hopefully in the process this post has helped you as well.
When in doubt or better still when you want to confirm the tax implications of any investment, I encourage you to seek out the direct advice from a tax professional. The wrong information could put you in very hot water with the Canada Revenue Agency (CRA) suffering penalties not to mention other financial hardships.
- If you keep most U.S. ETFs or stocks inside your RRSP or RRIF or LIRA or LIF – you won’t need to worry about T1135.
- If you keep foreign property held in other registered plans, such as your TFSA – you won’t need to worry about T1135.
- Any $100,000 threshold is based on the cost amount – it is not based on the fair market value of the property.
Before this post, did you know about foreign income reporting requirements? As an investor, do these requirements apply to you?
Note – all information above only current to the time of this post. Sources/examples below thanks to BMO.
Source: T1135 – BMO
Questions and answers about Form T1135.
This is my asset location, location, location in general terms here.
Thanks for your readership.
An fascinating dialogue is price comment. I feel that it’s best to write extra on this topic, it might not be a taboo subject but generally individuals are not enough to talk on such topics. To the next. Cheers
Thank you mark. Your question does not seem to answer my inquiry, will appreciate your being bit more clearer by replying directly to my email.
Can a sole Canadian corporation owner , an NRI, invest CDN$90,000 in Indian bank at 8% and cash out when the maturity amount reaches under $100,000. Will this effect his personal investment of similar amount? What are your thoughts. Thank you the wonderful work you do
I cannot offer personal advice on this site for many reasons, but my understanding for foreign income reporting, “property” means:
-Money held in foreign bank accounts
-Shares in non-Canadian companies held with a Canadian broker, such as U.S. stocks
-Shares of Canadian companies held with a foreign broker
-Land and buildings held outside Canada, such as a rental property in the U.S.
-Debts owed to you by non-Canadian residents, such as a mortgage loan
-Precious metals, gold certifications or futures held outside Canada
With securities inside registered accounts such as RRSPs, TFSAs, RESPs, that are exempt from foreign income reporting, you have opportunities to invest in those accounts. Good luck!
Thanks for the resource.
Could I ask if you get to take account of foreign mortgage liability in working out the value of your foreign property?
Property value 200,000
Foreign mortgage in same country 190,000
Net property value 10,000
In fact I think technically the property deed may even be kept in the name of the foreign financial institution until the mortgage is paid off in some countries!
Unfortunately I cannot offer any specific investing advice on this site but my understanding of your question is, when it comes to CRA, they are not really that concerned (if at all) how much foreign debt you have, they care about your foreign assets so they can tax you 🙂
How about the people who, while being factual residents of Canada, make an income elsewhere? What happens tax wise when they retire and want to spend their retirement in Canada and they want to bring in to Canada their hard-earned savings?
I would need to research those tax implications Maryam but you’re right, there are certainly considerations for residents of Canada, making an income elsewhere and what they can “import” to Canada per se for retirement savings. A good question.
Thanks for the informative post. I had to look into the filing of form T1135 recently and do agree that it is more complicated than it should be. From reading your post, I may have miscalculated the value of the foreign ownership in that you stipulate that one has to look at the cost of the property and not the value. I traded a lot of stocks in my non registered account held with a Canadian discount brokerage firm and the total value of the foreign stocks did go above $100,000 Canadian during the year. If I understand right, I would have to calculate the cost of these assets throughout the year and see if indeed it did exceed 100,000 at any time. If it did not, which I do not think it did, then the requirement of filing form T1135 is then not met, if I understand correctly. Could you confirm this?
Your readership may be interested in knowing the consequences of not filing form T1135 when you do indicate that you owned foreign property over $100,000 Cdn. In certain circumstances, its $25.00 per day for a maximum of 100 days or a total of $2500 plus interest.
I’m going to recalculate the cost base throughout the year and hopefully be able to file a T1 adjustment to indicate that I did not own foreign property over $100,000. I believe CRA accepts the month end statements as good enough for the “throughout the year” requirement. If you could confirm this also, it would be appreciated, along with any further information with respect to the varying value of stocks and their cost base calculations as it pertains to filing form T1135.
Thanks for reading Andre. Happy to accept reader questions although I don’t always know the answers.
My understanding at the time of the post, was, given the T1135 rules at the time, if you passed the $100,000 threshold at any point in the calendar/tax year then you needed to file a T1135 form.
Since my post, the T1135 rules have changed but that requirement, again, to my knowledge remains the same. Here is another reference:
“Canadian resident individuals, corporations and trusts that, at any time during the year, own specified foreign property costing more than $100,000; and partnerships that hold specified foreign property costing more than $100,000 and whose non-resident members’ share of income or loss is less than 90% during the reporting period.”
When in doubt, don’t follow my advice but ask the experts and in this case, the CRA.
All the best Andre,
Hi Mark, I’m holding VIG, IWO, and SPY. How can I tell if these are domiciled in Canada or the U.S.?
Usually you can tell by visiting the ETFs website and you’ll definitely know by reading the funds prospectus.
VIG is domiciled in the US, it’s a US-listed ETF.
IWO and SPY are also US products.
Happy investing and thanks for reading.
Thanks for the wonderful information that may now help me over come my sleepless nights. Like you, I own a property overseas, whcih cost C$45,000.00 and use it for 4 months a year, as I am close to my 100th birthday and don’t like colrd winters. I have 2 questions?
1. The condo purchase for C$45.000.0- is now worth over $100,000.00. Do have to declare it?
2. If I sale the condo, now worth almost C$130,000.00, after paying local taxes etc, it will likely bring in C$120,000.00? Do I have to declare it?
I’m not a tax pro or accountant so I cannot offer any personal advice on this site, for those reasons and more. I would recommend speaking to a financial professional for your case. I appreciate your readership.
Hi Mark, thanks for the great resource. I have a scenario that is not covered here, and I hope you can offer some feedback.
I own a stock investment portfolio with a cost base of about $12,000 (CAD) held in a foreign currency, in a foreign country. Do I need to calculate and report capital gains/losses on every trade in the portfolio? And do I need to report dividends? I get dividend cheques, which are then paid back into the account. Since the account was opened, I have only withdrawn the equivalent of about $200, although some of the value of the portfolio is regularly held in cash.
So exactly how do you report the foreign rental income on your Canadian taxes? What form? I have a guy for the US taxes and just need to get our Canadian taxes filed asap now that I know there are no taxes payable on the US side.
You use T1135.
Be mindful use of T1135 is only an issue if the value is >$100,000 during the year. Some exemptions apply, since you already know from my post, assets inside RRSP. However, that will not apply to your rental income situation.
Good luck and thanks for reading.
Hi Mark and thanks. 1136 doesn’t apply because the cost was under $100,000 (and note that it’s cost rather than market value). I figured out the rental income part, I think, and have used T776. I was just reading about a T2209 a bit, but need to research it to see if it applies.
Thanks for sharing this. Thought I might add my scenario to your collection of Q&A and hope that it will help others with their tax situation.
My wife and I purchased multiple properties in the U.S. with the total cost of 190K. We did not create an LLC, Partnership or Corporation. In this year tax return we are claiming 50/50 ownership on these properties. Since our split is only 95K each we are not obligated to file T1135. We are only require to report the rental income. This was verified by CCRA.
Interesting…thanks for sharing Phillip. So you are splitting the ownership now but how might this play out long term with capital gains to deal with? I guess that would be a my biggest concern when dealing with foreign property and where you split the non-incorporated assets.
thank you kindly for your illustrative article. Although the truth is that Revenue Canada operates in a parallel (bureaucratic) universe, the main problem is that taxation is theft, plain and simple. It is a scam. A “protection racket” run by the biggest mobsters on earth, the governments and their heads the politicians. It is not an issue of paying less taxes, it is an issue of paying no taxes. In the end, when everything is said and done and all the numbers tabulated, the destructiveness of taxes to our economy is astounding. Most people do not believe so, but consider the following. If taxes would not exist by now we would be so rich that all poverty on earth would have been eliminated!
Thanks for your comment!
I have been a Canadian PR for the last three years and have been living in Canada. I have inadvertently not declared my global income for purposes of tax filing in Canada. I would like to correct it and am prepared to pay whatever penalty or fines. Could you please advise me the process?
Thanks for your question but I would consider consulting with a qualified tax professional for your situation.
If i have a US trading account with 60k in stocks and 50k in cash, do i have to fill the form. The account is held at a canadian bank. Do I understand correctly that the cash would only count toward the limit if it would be held in a foreign bank.
Indeed. You’d think CRA would want to keep the tax requirements simple and easy to use? Easier to administer, less overhead, increase compliance, the list goes on. What do I know though.
We’ve been interested in buying property in the US before but really have not looked into the tax implications. Thanks for the awesome resource!
Thanks for sharing this, Mark. I probably won’t have to worry about this for a while, but good god, can’t they make the tax code simpler? Just dealing with GST / HST headaches in my business is quite annoying with all of the different provinces and regimes! This imposes disproportionate costs on smaller businesses who don’t have an army of accountants behind them.
Thx for the kind words. Well done, maybe you missed your calling and you should have been a tax accountant, it is a wild a crazy profession 🙂