Reporting foreign property and foreign companies to the CRA

Which forms might I have to file?

Five CRA information returns cover foreign holdings and dealings. T1135 covers foreign property, T1134 covers foreign companies you own a significant share of, and the other three cover foreign trusts and dealings with related non-residents.

Income from foreign property is taxable in Canada and goes on your return, whatever the property cost (CRA Q&A).

Who must file Form T1135?

Every Canadian resident whose specified foreign property cost more than $100,000 in total at any time in the year. That includes individuals, self-employed people, corporations and trusts (ITA s. 233.3).

• Partnerships file their own T1135 unless non-resident or tax-exempt members get 90% or more of its income or loss. When the partnership files, its partners do not report their interest in it.
• New residents do not file for the year they first become resident in Canada. This applies to individuals, not trusts, and also covers T1134, T1141 and T1142 (ITA s. 233.7). The CRA says a former resident who returns has not first become resident (T1134 instructions).
• People who leave Canada during the year need to report only for the part of the year they were resident. This is CRA administrative relief; the Act itself requires the full year (CRA Q&A).

How is the threshold measured?

By cost, not market value, added across all your specified foreign property (CRA Q&A).

• Cost amount is generally what you paid. For property you owned when you moved to Canada, it is the fair market value when you became resident. For a gift or inheritance, it is the fair market value when you received it.
• Any time in the year. If you crossed the threshold and then sold, you still file.
• All property together. Two holdings each under the threshold can cross it combined.
• Full cost, not equity. A mortgaged property counts at its full cost.
• Canadian dollars. Generally, convert at the exchange rate when you bought (Form T1135).

What counts as specified foreign property?

• Money held outside Canada, such as in a foreign bank account, including prepaid cards. A US-dollar account at a bank in Canada does not count: where the money is held matters, not its currency
• Shares of non-resident corporations, even when held through a Canadian broker
• Shares of Canadian corporations held for you outside Canada, such as Canadian stocks in a US brokerage account
• Debts owed to you by non-residents, including foreign government and corporate bonds
• Real estate outside Canada that you rent out or hold as an investment, including vacant land
• An interest in a partnership that holds foreign property, but only if non-resident or tax-exempt members get 90% or more of its income
• Other property abroad, such as foreign insurance policies, precious metals held outside Canada, interests in non-resident trusts you paid for, and options or other rights to acquire foreign property

What does not count?

• Property used or held only in an active business, such as a foreign warehouse holding your inventory. A business whose main purpose is earning rent or investment income usually does not count as active here
• Personal-use property, such as a vacation home used mainly by you or related people, like your spouse, parents or children
• Shares of, and debts owed by, your foreign affiliate (report those on T1134)
• Property held in a registered plan, such as an RRSP, RRIF, TFSA or FHSA
• Units of a Canadian mutual fund trust, even one that invests abroad
• An interest in a foreign retirement arrangement, such as a US IRA, and some foreign pension trusts (ITA s. 233.3(1)(n))

Whether a property that is partly rented and partly used personally counts depends on the facts; the CRA's Q&A gives examples.

Simplified or detailed reporting?

If your total cost stayed below $250,000 all year, you may use the simplified method in Part A: tick the types of property, name the top three countries, and give total income and gains. If it reached $250,000 at any time, you must use Part B and list each property. Part B asks for each property's highest cost during the year; you may use its highest month-end cost for that. Property held with a Canadian registered securities dealer or trust company can be totalled by country in Part B's category 7.

When is T1135 due, and how do I file it?

It is due on your income tax return's due date, even if you do not have to file a return (CRA).

File electronically with CRA-certified tax software, or on paper attached to your return or mailed separately to the address on the form.

When must I file Form T1134 for a foreign company?

When a non-resident corporation is your foreign affiliate at any time in the year. Generally, that means you own at least 1% of it, directly or through foreign companies, and at least 10% together with related people (ITA s. 95(1)). Certain non-resident trusts can also be foreign affiliates.

• Who files: Canadian-resident individuals, corporations and trusts, and partnerships unless non-resident or tax-exempt members get 90% or more of the income (ITA s. 233.4).
• What: One summary, plus one supplement for each foreign affiliate, including most affiliates your affiliate owns. For each controlled affiliate, and each other affiliate where you hold at least 20% of the votes, also include its unconsolidated financial statements with notes (T1134 instructions).
• Due: 10 months after your year-end. For an individual, that is October 31 of the next year.
• Held through a Canadian company: if you hold the affiliate only through a Canadian company, that company reports it, not you. In a group of Canadian companies under common control, generally only the lowest-tier company reports it, unless another company in the group also owns shares of it directly. Related filers with the same year-end may choose to file one T1134 together (ITA s. 233.4(2); T1134 instructions).
• How: Individuals, corporations and partnerships can file electronically. Paper returns from individuals and trusts go separately from the income tax return.

Is there relief for a small, inactive affiliate?

Yes. You skip the supplement for an affiliate if all three are true for the year (T1134 instructions):

• Your cost of the interest was below $100,000 at all times.
• The affiliate's gross receipts, including loans and sale proceeds, were below $100,000.
• Its assets were never worth more than $1,000,000.

You still file the T1134 summary and list the affiliate in the dormant-affiliates table.

What if I cannot get the affiliate's information?

The return need not include it if you disclose what is missing, tried diligently to get it, and file it within 90 days of it becoming available. Extra conditions apply for a controlled affiliate (ITA s. 233.5).

What about non-resident trusts?

Two forms cover them, and the trust's facts decide whether either applies.

• T1141: You are resident in Canada and contributed to a non-resident trust. You keep filing every year you remain a contributor. Some trusts are exempt, including foreign retirement arrangements such as US IRAs (CRA).
• T1142: You have a beneficial interest in a non-resident trust and received a distribution from it or owed it money. It does not apply to a foreign retirement arrangement such as a US IRA, an estate that arose on a death, or a trust you already report on T1134, T1135 or T1141 (CRA).

When does a business file Form T106?

When its transactions with non-residents it does not deal with at arm's length, such as a foreign parent or subsidiary, total more than $1,000,000 in the year. It files one summary and one slip per non-resident (Form T106; ITA s. 233.1).

• Corporations: 6 months after year-end
• Trusts: 90 days after the trust's year-end
• Individuals: April 30, or June 15 if you or your spouse or common-law partner is self-employed
• Partnerships: the partnership information return's due date; one return for the partnership, not each partner

T106 goes separately from the income tax return. Individuals and trusts file it on paper.

What are the penalties?

Each late or missing return has its own penalty, and they grow if the failure was knowing or grossly negligent (CRA; ITA s. 162 and s. 163).

For T106, the CRA may charge a late-filing penalty for each slip (Form T106).

Can the CRA reassess later than usual?

Yes. The normal reassessment period (3 years for individuals and Canadian-controlled private corporations) gets 3 more years if your T1135, or that of a partnership you are a member of, was missing, late or inaccurate and you also left income from specified foreign property off your return (ITA s. 152(4)(b.2)). Income or amounts relating to a foreign affiliate, or transactions with related non-residents, also get 3 more years (s. 152(4)(b)(iii)).

What if I missed a filing?

The late-filing penalty keeps growing until you file, up to 100 days. The CRA says its Voluntary Disclosures Program may be available for missed or incomplete T1135s if certain conditions are met (CRA Q&A).

How does this work for US accounts, property and companies?

• US accounts, shares and rental property follow the lists above; for example, a US condo you rent out counts at its full cost.
• A US LLC. The CRA treats a US LLC as a corporation, even when the US ignores it for tax (IC71-17, para. 88). If you own enough for it to be a foreign affiliate, you file T1134 for it and leave it off T1135. A smaller stake counts as T1135 property. See filing for a Canadian owner of a US LLC.
• Americans in Canada. The Canadian forms apply to you as a Canadian resident. As a US person, you may also have to file an FBAR if your accounts outside the US total more than US$10,000 at any time in the year (FinCEN), and Form 8938 with your US return if your foreign assets pass its higher thresholds (IRS). See reporting foreign accounts to the US.

Example

A Vancouver resident (illustrative, not self-employed) holds, in Canadian dollars at the exchange rates when she bought:

Her specified foreign property is $420,000: the shares, the cash and the condo at its full cost. The RRSP is excluded. That is over $100,000, so she files T1135. It is also over $250,000, so she must use the detailed Part B, listing the cash, the shares and the condo. It is due with her return by April 30. Her dividends and net rental income go on her return either way.

If the condo were a vacation home she used mainly herself, her total would be $70,000 and she would not file T1135, though she would still report the dividends. If she had first become resident in Canada this year, she would not file T1135 for this year.

Different for you?

• You own part of a US LLC or corporation: the US side has its own forms. See filing for a Canadian owner of a US LLC and setting up a US business as a Canadian resident.
• You are a US citizen or green card holder in Canada: see Americans living in Canada and reporting foreign accounts to the US.
• You rent out or sell US property: the US may tax you too. See when foreign owners owe US tax.
• You spend winters in a US home: see snowbirds and US residency.
• You missed T1135 or T1134 for past years, or have a foreign trust or related-party dealings: these need a careful look. See cross-border tax or tax preparation.