Many Canadians, especially those who have recently moved to Canada, own assets outside of Canada. Foreign property ownership can be dangerous if you are not aware of the Canada Revenue Agency’s (“CRA”) filing requirement for certain foreign assets — in fact, failure to disclose the required information may result in severe penalties.
You have likely seen this question on a personal tax return: “Did you own or hold foreign property at any time in the year with a total cost of more than CAN$100,000?” However, you may not be aware of why CRA asks this question; if you answer “yes” to this question, then you are required to file Form T1135, Foreign Income Verification Statement.
The next logical question to ask is, “What kind of foreign property must be reported on your personal returns?” If you own one or more of the following types of foreign property, you are required to disclose such property on Form T1135:
- amounts in foreign bank accounts
- shares in foreign companies
- shares of corporations resident in Canada held outside Canada (e.g., in a brokerage account in another country)
- interests in non-resident trusts
- bonds or debentures issued by foreign governments or foreign countries
- life insurance policies issued by a foreign issuer
- a property that is convertible into, exchangeable for, or confers a right to acquire a property that is “specified foreign property” as defined in subsection 233.3(1) of the Income Tax Act (e.g., a call option which has been purchased)
- interests or units in offshore mutual funds
- real estate situated outside Canada (unless mainly held for personal use and enjoyment)
- other income-earning foreign property
- precious metals, gold certificates, and futures contracts held outside Canada
Many people are not aware of the reporting requirements for their investments in foreign stocks held in a Canadian brokerage account. Foreign stocks, although held in a Canadian brokerage account, are required to be reported on T1135. It is important that you contact your investment advisor for a T1135 report.
Also, many people do not have a net rental income from rental properties located outside Canada. It is true that there is no income tax to pay when there is no profit; however, it is important that such rental property is properly reported on Form T1135.
If you think you are subject to the T1135 filing obligation, but you have not yet complied, please contact an MCA Cross Border Advisors Inc. team member.
MCA Cross Border Advisors, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.