Canada Foreign Income Guide (T1135, Foreign Property Reporting)

the foreign income reporting in Canada. The T1135 (the "Foreign Income Verification Statement") is the form used to report the "specified foreign property" when the total cost of the foreign property exceeds $100,000 CAD at any time in the year. The "specified foreign property" includes the foreign bank accounts (the "deposits in the foreign banks"), the foreign stocks and the bonds (the "shares of the foreign corporations", the "foreign ETFs", the "foreign mutual funds"), the foreign real estate (the "vacation property", the "rental property", the "foreign land"), the foreign insurance policies (the "foreign life insurance policies" with the cash surrender value), the foreign patents and the copyrights, and the foreign loans (the "loans to the non-residents"). The T1135 filing deadline — the T1135 is filed with the T1 General return (the "April 30 deadline" — the "income tax filing deadline"). The T1135 penalties — the late filing penalty of $25 per day (up to $2,500), the "failure to file" penalty of $500 to $2,500, and the "gross negligence" penalty of $2,500 to $25,000. The foreign tax credits (FTCs) — the Canadian resident can claim the FTCs for the taxes paid to the foreign country on the foreign-source income. The foreign investment income (the "foreign interest", the "foreign dividends", the "foreign capital gains") is reported on the same tax return as the Canadian income (the T1 General). The foreign pension income — the "US Social Security benefits", the "UK State Pension", the "French assurance retraite", the "German Rentenversicherung" — the foreign pension is taxable in Canada (with the foreign tax credit for the foreign tax withheld).

T1135 (Foreign Property Reporting)

$100,000 threshold: The T1135 must be filed if the total "cost amount" (the "cost base" — the "original purchase price") of the specified foreign property exceeds $100,000 CAD at any time in the year. The threshold is the "aggregate cost" of all the foreign property (the "pooling" rule — the bank accounts, the stocks, the bonds, the real estate are all counted together).
Specified foreign property: The foreign bank accounts (the "deposits"), the foreign stocks and the bonds, the foreign real estate, the foreign insurance policies, the foreign trusts, the foreign partnerships, the foreign patents and the copyrights, and the foreign loans. The "excluded property" — the foreign property used in the "active business" (the "foreign business property"), the personal-use property (the "cottage used by the family"), and the foreign property held in the registered accounts (the RRSP, the TFSA, the RESP, the RDSP).
T1135 filing: The T1135 is filed with the T1 General return (the "paper return" — the T1135 is NOT filed through the NETFILE). The T1135 requires the details of each foreign property — the "country", the "type of the property", the "cost amount", the "income", and the "capital gain".
Penalties: The late filing penalty — $25 per day (up to $2,500). The "failure to file" penalty — $500 to $2,500 (for the "knowing" failure). The "gross negligence" penalty — $2,500 to $25,000 (for the "wilful" omission). The CRA can waive the T1135 penalties under the "voluntary disclosure" program.

Foreign Tax Credits (FTCs)

Foreign non-business income tax: The FTCs for the "foreign non-business income" (the "investment income" — the foreign interest, the foreign dividends, the foreign capital gains, the foreign rental income). The FTC is limited to the Canadian tax payable on the foreign income (the "FTC limitation").
Foreign business income tax: The FTCs for the "foreign business income" (the "business carried on in the foreign country"). The FTC is limited to the Canadian tax payable on the foreign business income.
Form T2209: The "Federal Foreign Tax Credits" — the form calculates the FTCs for the foreign non-business income. The Form T2036 — the "Provincial Foreign Tax Credits" — the form calculates the FTCs for the provincial portion.

Foreign Pension Income

US Social Security: The US Social Security benefits are taxable in Canada (the "Canada-US Treaty" — the US Social Security is "taxable in the country of the residence"). The US withholds the 15% tax (the "treaty rate"). The Canadian resident reports the gross US Social Security and claims the FTC for the US tax withheld.
UK State Pension: The UK State Pension is taxable in Canada (the "Canada-UK Treaty" — the UK pension is "taxable in the country of the residence"). The UK does NOT withhold the tax on the UK State Pension (the "no withholding" rule).
Foreign pension deduction: The Canadian resident who receives the foreign pension can deduct the "contributions to the foreign pension" (the "foreign pension deduction" — the "deduction for the foreign pension contributions" — the "limited deduction").

For the cross-border tax rules and the US-Canada Treaty, see our Cross-Border Tax Guide →. For the non-resident taxation and the Part XIII withholding, see our Non-Resident Taxation Guide →.