How are foreign property reporting requirements applied in Canada?

Canadian residents are generally taxed on their worldwide income. To ensure compliance and track potential undeclared foreign income, the CRA requires residents holding specified foreign property to report these holdings annually using Form T1135, Foreign Income Verification Statement.

Who Must File Form T1135:

A Canadian resident must file Form T1135 if the total cost of their specified foreign property exceeded USD 100,000 at any time during the tax year.

What Constitutes Specified Foreign Property?

Specified foreign property includes a broad range of assets held outside of Canada, such as:

• Foreign cash deposits.
• Shares or securities in foreign corporations.
• Interests in foreign trusts or partnerships.
• Real property situated outside of Canada (and any mortgage owing on that property).
• Shares of mutual funds or ETFs that are not listed on a prescribed Canadian exchange.

Important Exclusions:

Several common assets are generally excluded from the reporting requirement, provided they are held in a registered Canadian account:

• Property held in an RRSP, RRIF, or RPP.
• Property held in a TFSA or an equivalent registered plan.
• Property used principally in an active business carried on by the taxpayer outside of Canada.

Reporting Deadline and Penalties:

The T1135 must be filed by the taxpayer’s regular income tax filing deadline, which is June 15th for individuals who have self-employed income, or April 30th otherwise (though the filing deadline for the return itself remains April 30th for most).

Penalties for failure to file, late filing, or false statements can be severe. The penalty for failing to file on time is USD 500 per month, up to a maximum of USD 2,500. If the CRA reassesses the return and the taxpayer has still not filed, additional penalties apply, which can reach up to 5% of the highest fair market value of the specified foreign property held during the year.