Disclosing foreign property
Understanding the CRA rules and filing Form T1135
Taxpayers resident in Canada who own specified foreign property (SFP) with a cumulative cost exceeding $100,000 at any time during the year are required to disclose these details on Form T1135, Foreign Income Verification Statement. The form does not compute additional income taxes payable on the SFP disclosed but rather is intended to allow the Canada Revenue Agency (CRA) to gain insight on taxpayers’ non-Canadian assets as part of enforcement against international tax evasion.
Here is some basic information about Form T1135 and filing details.
What is specified foreign property?
Many assume that SFP only includes assets physically located outside of Canada; however, the definition is broader than it appears. Common categories of SFP include:
- Funds deposited or held outside of Canada. This category includes Canadian dollars held at a financial institution outside of Canada.
- Tangible property situated outside of Canada, such as real estate. However, SFP does not include personal-use property (property used primarily for personal or enjoyment purposes), so this category mainly captures rental or vacant property outside of Canada.
- Shares of non-Canadian corporations. This category applies even if such shares are held in a Canadian brokerage account.
- Shares of Canadian-resident corporations that are held outside of Canada.
- Interests in non-Canadian trusts that were acquired for consideration, such as foreign mutual funds listed on a non-Canadian exchange.
- Interests in partnerships that hold SFP.
- Debts owed by a non-resident of Canada.
- Interests in non-Canadian insurance policies.
SFP does not include the following:
- Personal-use property (e.g., personal-use real estate assets outside of Canada and associated personal effects).
- SFPs held in registered plans (e.g., RRSP/RRIF, RPP, RDSP, RESP, TFSA).
What details have to be disclosed on Form T1135?
Part A is a simplified method for taxpayers who held SFP with a total cost exceeding $100,000 but under $250,000 throughout the entire year. Under this approach, taxpayers only need to:
- Check the box for each type of SFP held rather than itemize each asset.
- Report the top three countries based on the aggregate maximum cost of SFP held.
- Report the gross income from all SFP held and capital gain or loss from the disposition from all SFP during the year.
Part B is a detailed method for taxpayers who held SFP with a total cost of $250,000 or more at any time during the year. Under this approach, all SFP owned over the course of the year has to be reported in one of seven categories:
- Funds held outside Canada.
- Shares of non-resident corporations.
- Indebtedness owed by non-resident.
- Interests in non-resident trusts.
- Real property outside Canada.
- Other property outside Canada.
- Property held in an account with a Canadian registered securities dealer or a Canadian trust company.
The specific information required for each category differs. You should review the Form T1135 with your professional tax advisors to determine what information is needed and where to obtain the information.
Our team can provide consolidated reporting for your SFP held at Richardson Wealth. Contact us for more information.