Foreign reporting requirements

If you’re a resident of Canada, you must declare your income from all sources—Canadian and foreign. In addition, if the total cost of your specified foreign property exceeds CAN$100,000 at any time in 2015, you also have to report information about these foreign investments on your tax return (Form T1135). This form must be filed by the due date for filing your income tax return for the particular year.

Specified foreign property includes

  • bank accounts held abroad,
  • debt securities and shares of foreign corporations,
  • real estate, and
  • other tangible and intangible properties located outside Canada.

It does not include

  • property used or held exclusively in the course of carrying on an active business,
  • registered pension fund investments,
  • foreign investments held in Canadian-registered mutual funds,
  • personal-use properties, and
  • shares of a foreign affiliate.

Example: You own shares of non-resident corporations with a cost amount of $140,000. The shares are held by a Canadian broker. You must report these investments, as well as the income earned thereon, even if the shares are physically held in Canada because the cost amount is greater than $100,000.

Reporting may also be required if you have transferred or loaned funds or property to a foreign-based trust (Form T1141); have received funds or property from, or are indebted to, a foreign-based trust (Form T1142); or for the ownership of shares of a foreign affiliate (Form T1134).

Form T1135 has recently been revised to require more detailed reporting for each specified foreign property held during the year.

What additional information is required?

Prior to 2013, the rules provided that the cumulative cost (generally, the original purchase price) in Canadian dollars of all specified foreign investments had to be reported on the form, segregated by type, such as foreign shares or indebtedness, along with the total income reported from the investments and the foreign source where the investments were located. For 2013 and subsequent years, you now have to provide the following additional information:

  • whether the filing is an amended return;
  • the country where each property is located;
  • the maximum cost of each property held during the year, as well as its cost at year-end;
  • any gain/loss recognized on a disposition of the property;
  • the amount of foreign income earned on each property during the year;
  • whether foreign income you have received has been reported on a T3 or T5 tax slip from a Canadian issuer in respect of a specified foreign property (for 2013 only)
  • the name of the bank or other entity holding funds outside of Canada;
  • where the form is prepared by a partnership, the nature of the partners (individuals, trusts, or corporations) must be disclosed;
  • if you hold foreign shares, the name of the corporation issuing the shares;
  • a description of any indebtedness owed to you by a non-resident;
  • where an interest is held in a non-resident trust, the name of the trust and the amount of income and capital distributions received (if any) during the year;
  • a description of all real property you hold outside of Canada (except for personal use property and real estate used in an active business); and
  • a description of all other specified foreign properties held outside of Canada.

However, instead of the above, there is a streamlined reporting option available for specified foreign properties held in accounts with Canadian registered securities dealers and/or Canadian trust companies. With this streamlined method, detailed reporting for each specified foreign property is not required. Instead, these foreign properties can be aggregated and reported on a country- by-country basis, or aggregate totals can be reported for each particular account, as long as they are reported on a country-by-country basis. Fair market values at year end would be reported instead of cost, along with the highest month-end fair market value for the year. A similar “transitional method” was available for 2013 reporting only.

The 2015 federal budget has proposed to introduce a new simplified reporting system for tax years beginning in 2015 and later, where the total cost of specified foreign properties held is less than $250,000 throughout the year. Otherwise, the current reporting requirements will continue to apply.

This foreign reporting requirement applies to corporations, partnerships, as well as individuals. Individuals have the option of electronically filing Form T1135, effective for the 2014 and later taxation years. The CRA has indicated that electronic filing of the form will become available to corporations and partnerships as well, but no time line has been provided yet. In the meantime, corporations and partnerships must continue to paper file the form.

The amount of information required to be reported on this form could be significant, and in some cases, the information won’t be readily available. You should contact your tax adviser if you think you may own foreign property that would require disclosure under these rules.

Tax tip: Does your portfolio include specified foreign investments? If so, then it’s time to consult your tax adviser to review your filing requirements. In some cases, the information you’re required to report won’t be readily available and you’ll need time to accumulate it.