Foreign Property Reporting Requirements

Canadian residents are required to report their income on a worldwide basis. In addition, every individual must indicate on their personal income tax return whether they own “Specified Foreign Properties” with an aggregate cost of $100,000 or more. To determine the cost of foreign properties acquired in a currency other than Canadian dollars, use the exchange rate in effect at the time the property was purchased. If you own Specified Foreign Properties with an aggregate cost more than $100,000 you must complete and file Form T1135 by your tax return due date (April 30 of the following year for many individuals, otherwise June 15 for self-employed individuals). Individuals do not need to complete this statement for the year in which they first became a resident of Canada, but they still need to report on their Canadian income tax return for that year the foreign property income earned after becoming a resident of Canada.

The Canada Revenue Agency has implemented changes to Form T1135 for the 2015 and later tax years. The changes allow taxpayers who held specified foreign property with a total cost amount more than $100,000 but less than $250,000 throughout the year to report under a new simplified reporting method. This reporting method allows taxpayers to simply check a box for each type of property they held. For taxpayers who held specified foreign property with a total cost of $250,000 or more throughout the year, the current detailed reporting method will apply.

However, under the current detailed reporting method, taxpayers are allowed to report the aggregate amounts for specified foreign property held in accounts with registered securities dealers and Canadian trust companies rather than providing the detail of each such property.This reporting method requires taxpayers to provide the aggregate fair market value of the property in each account on a country by country basis.

Specified Foreign Property does not include property that is purely for personal use and generates no income. If the foreign property (for example, a vacation home) is not used to generate income, then it does not have to be reported as foreign property. Foreign property used exclusively in an active business, foreign property held through a Canadian mutual fund, and foreign property held through an RRSP are also exempt from this reporting requirement.

Other foreign property reporting may be required where you own foreign corporations, have transferred or loaned funds to a non-resident trust, or received distributions from or borrowed funds from a non-resident trust.

The foreign property reporting requirements are complex, and failure to comply with the reporting requirements can result in significant penalties. Contact our knowledgeable Chartered Professional Accountants to help you understand the reporting requirements and identify tax-planning opportunities for foreign tax credits.

Foreign Pension Income

Canadian residents are required to report worldwide income on their Canadian income tax return. This would include pension income from foreign pension plans and US social security benefits. Under the Canada–US Income Tax Convention, only 85% of US social security benefits are taxable in Canada. However, effective for the 2010 and subsequent taxation years,Canadians will be able to claim an additional deduction of 35% of US social security benefits if they have been resident in Canada and have continuously, since before 1996, received US social security benefits in each taxation year. The additional deduction can also be claimed if the benefits are paid to a taxpayer in respect of a deceased spouse or common-law partner who received benefits prior to 1996.

Some foreign pension income is eligible for pension income splitting. Generally, Canadian residents who are 65 years of age or older at the end of year can transfer up to 50% of their pension income to their spouse or common-law partner if they jointly sign and file Form T1032. Where the Canadian resident is not 65 years of age at the end of the year, only “qualified pension income” that is eligible for the $2,000 pension income amount is eligible for pension income splitting.

A Canadian resident may transfer certain payments from a foreign pension plan to an RRSP provided the amount is included in income and attributable to services rendered by the individual, or his/her spouse or common-law partner, in a period throughout which the individual, or his/her spouse or common-law partner, were not resident in Canada. The transfer should be made within 60 days following the end of the year in which the income is received, and it may be made over and above the individual’s regular RRSP contribution room.

A foreign tax credit can be claimed on the Canadian income tax return where the foreign pension income is taxable in the foreign country to reduce the person’s overall Canadian tax liability. Taxation of a foreign pension received by a resident in Canada may vary depending on the tax treaty Canada has with the payer country. If you earn foreign pension income, contact our knowledgeable Chartered Professional Accountants to determine whether the foreign pension income is taxable in Canada.

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This post has been prepared for general information purposes. It is not advice. The information presented may not fit your unique situation, please consult one of our trusted business advisors at RHN CPA for further clarification and interpretation of your circumstances.