Foreign Income Reporting

For many Canadians taxes create confusion and because the Canada Revenue Agency has such complicated reporting requirements, clients reach out to me for clarification and guidance in meeting their tax obligations.

One of the more confusing tax topics is Foreign Income Reporting and filing Form T1135 Foreign Reporting Income Verification Statement.

Who needs to file a T1135?

If you or your corporation receive foreign income such as rental income and dividends, you will need to report this income in the appropriate section of your personal income tax return or your corporation tax return. You will also need to complete a T1135 if the cost of the foreign property you own is greater than $100,000 Canadian.

What is the filing deadline?

A T1135 must be filed for each year that it is applicable and submitted with your personal income tax return by April 30 or by the due date for your corporation.

What foreign property is exempt?

Mutual Funds

If you hold mutual funds that are resident in Canada, you do not have to report these even if they hold foreign stock. However, if you have mutual funds that are resident outside Canada, they must be reported.

Canadian Stocks

If you hold Canadian stocks that are in US dollars, again, you do not have to report these. The residency of the issuer is what determines whether to report or not.

Personal Use Property

If you are fortunate enough to own a vacation property outside of Canada and use it strictly for your own personal use, you are not required to report this to the Canada Revenue Agency.

This is one of the more complicated areas of tax and going it alone may not be in your best interest. There are details and exceptions that only a professional accountant can help with. The Canada Revenue Agency has placed the onus on the taxpayer to know when and how to report and has imposed a severe penalty if not filed on time or if filed incorrectly. The penalty is $25 per day for each day that it is late up to a maximum of $2,500.

Questions?

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