By OptiVal Editorial Desk

T1135 in Canada: The $100,000 Foreign Property Rule Owners Miss

Filing a T1135 in Canada has nothing to do with how much tax you owe. It is a reporting form, and that is why people miss it. You can report every dollar of foreign income, pay the right tax, and still face penalties because the form itself never got filed. If the total cost of your specified foreign property topped $100,000 Canadian at any point in the year, the CRA expects a T1135, the Foreign Income Verification Statement, with your return.

What the T1135 in Canada actually is

Form T1135 is an information return. It does not calculate tax. It tells the CRA what foreign property you hold, where it sits, what it cost, and what income it produced.

The form must be filed by Canadian resident individuals, corporations, and certain trusts that own specified foreign property costing more than $100,000 at any time during the year. Certain partnerships have to file as well. An individual does not have to file for the year they first become a resident of Canada.

The official rules are on the CRA page for the Foreign Income Verification Statement. Most surprises come from the definition of the property, not the threshold.

The $100,000 test: cost, not value, and at any time

Two details catch owners out. First, the test uses cost amount, in Canadian dollars. Not market value, not the year end balance, and not the gain. If you bought US shares for $110,000 and they fell to $80,000, you still crossed the line. What you paid decides it.

Second, the test applies at any time during the year. A portfolio that crossed $100,000 in July and dropped back by December still triggers a filing. Selling before year end does not erase it.

What counts as specified foreign property

Specified foreign property is defined in subsection 233.3(1) of the Income Tax Act. The CRA list includes:

• Funds or intangible property, such as patents and copyrights, situated, deposited, or held outside Canada. A foreign bank account is the plain example.
• Tangible property situated outside Canada. A foreign rental property counts here, at its cost.
• Shares of a non-resident corporation. US shares count even when they sit in a brokerage account in Canada.
• Shares of a corporation resident in Canada that are held outside Canada, for example with a foreign broker.
• An interest in a non-resident trust that was acquired for consideration.
• An interest in a partnership that holds specified foreign property, unless the partnership itself has to file a T1135.
• A debt owed by a non-resident, including bonds, debentures, mortgages, and notes receivable.
• An interest in a foreign insurance policy.
• Precious metals, gold certificates, and futures contracts held outside Canada.

What does not count

The CRA list of exclusions is just as important:

• Property used or held exclusively in carrying on an active business.
• A share of the capital stock, or indebtedness, of a foreign affiliate. That property belongs on a different form, covered below.
• An interest in an exempt trust, as defined in the Act.
• Personal-use property, as defined in section 54. A vacation home abroad that you use yourself and do not rent out is the usual example. Once you rent it, the analysis changes.

Two practical points matter here. Property held inside a registered plan, such as an RRSP or a TFSA, does not count, because the plan trust is the holder for tax purposes. And a Canadian fund that holds US stocks is Canadian property in your hands: you hold units of a Canadian fund, not the foreign shares inside it.

Part A or Part B: the $250,000 split

The T1135 has a two-tier structure. Part A is the simplified method, for total cost over $100,000 but under $250,000 throughout the year. You check a box for each type of property held, with no listing of every holding.

Part B is the detailed method, required if your total cost reached $250,000 or more at any time. You report property by category and country, with maximum cost, year end cost, and income or gain. Taxpayers who qualify for Part A can still choose Part B.

Individuals can file electronically through EFILE or NETFILE, corporations can EFILE as well, and paper filers send the form with the return, or separately to the Winnipeg Tax Centre, by the same due date.

Deadline and penalties: the expensive part

For individuals, corporations, and trusts, the T1135 is due on the same date as the income tax return. For partnerships, it is due on the partnership information return date.

The CRA penalty table for foreign reporting is blunt:

• Failure to file: $25 per day for up to 100 days, with a minimum of $100 and a maximum of $2,500, per return.
• Failure done knowingly, or in circumstances amounting to gross negligence: $500 per month for up to 24 months, to a maximum of $12,000, less penalties already levied.
• Failure after a CRA demand to file, again knowingly or with gross negligence: $1,000 per month for up to 24 months, to a maximum of $24,000, less penalties already levied.
• After 24 months, an additional penalty of 5 percent of the cost of the foreign property, less penalties already levied.

There is a second cost. If you failed to report income from a specified foreign property and your T1135 was not filed, was late, or was inaccurate, the CRA gets an extra three years to reassess that return.

If you discover a missed year, fix it before the CRA finds it. Coming forward under the Voluntary Disclosures Program is almost always cheaper than waiting for a letter. Our guide to the CRA Voluntary Disclosure Program explains that route.

T1135 or T1134: do not mix them up

Owners with a foreign company often file the wrong form, or file one and miss the other. Shares and debt of a foreign affiliate are excluded from the T1135 because they are reported on Form T1134, which has its own tests and a due date 10 months after year end. Portfolio holdings, foreign accounts, and foreign rental property belong on the T1135. Some owners owe both forms in the same year. Our T1134 foreign affiliate guide covers that side in full.

A short pre-filing checklist

• List every foreign account, share, fund, and property abroad.
• Convert each cost to Canadian dollars at the rate when you acquired it, and keep that rate.
• Add the costs together and test the total at its highest point in the year, not just at year end.
• Decide Part A or Part B using the $250,000 line.
• Keep brokerage statements, purchase confirmations, and rental records with the return.

If you are not sure whether your holdings cross the line, book a free consultation through our contact page. We help owners clean up foreign reporting, with bookkeeping from $199 per month and advisory at $125 per hour, plus HST. See our services page and pricing page. Led by qualified professionals with more than 75 years of combined experience, PwC-trained, with team members who have worked at world-leading multinationals in CFO-level positions, we would rather fix a filing in October than argue about a penalty in April.