Foreign income generally must be reported even when the T1135 threshold is not met. Form T1135 is an additional information return for specified foreign property; it does not calculate the income tax itself.
Start with the $100,000 cost-amount test
Individuals, corporations, trusts and certain partnerships resident in Canada may have to file Form T1135 when the total cost amount of all specified foreign property is more than CAD $100,000 at any time in the year. The test aggregates the relevant property; it is not applied separately to each account or investment.
Cost amount is generally based on tax cost or adjusted cost base, not current market value. If property with a $110,000 cost falls to $85,000 in market value, the lower value does not automatically remove the filing requirement. A filing may also be required when the threshold was exceeded earlier in the year even if property was sold before year-end.
A simple aggregation example
Original Canadian-dollar cost: $72,000
Highest relevant cost amount: $36,000
$108,000 — above the $100,000 threshold
Neither item is above $100,000 alone, but the combined cost amount is. The taxpayer should review whether both items are specified foreign property and whether Form T1135 is required.
Property that commonly needs review
Specified foreign property can include funds in a foreign bank account, shares of non-resident corporations, debts owed by non-residents, interests in certain non-resident trusts or partnerships, and real property outside Canada that is held to earn income. Foreign shares can still require consideration when they are held through a Canadian securities dealer, although an aggregate reporting option may be available for property in an account with a Canadian registered securities dealer or Canadian trust company.
Location and currency are not enough on their own. A U.S.-dollar account at a Canadian bank is not automatically foreign property merely because it is denominated in U.S. dollars, while shares of a non-resident company may be specified foreign property even when a Canadian broker holds them.
Important exclusions
Common exclusions can include personal-use property, property used or held exclusively in an active business, and certain property held inside registered plans. A vacation home used mainly for personal enjoyment may be treated differently from a foreign property rented with a reasonable expectation of profit. The legal ownership, purpose and use of the property matter, so do not rely only on the asset’s address.
Part A or Part B
Part A is the simplified method for a taxpayer whose total cost of specified foreign property was more than $100,000 but remained below $250,000 throughout the year. Part B is the detailed method when the total cost was $250,000 or more at any time during the year. A taxpayer eligible for Part A may choose detailed Part B reporting instead, but should not complete both methods for the same year.
Convert amounts consistently to Canadian dollars
Maintain the original purchase records and the foreign-exchange rate used to establish Canadian-dollar cost. Track additions, sales, return of capital and reorganizations that may change adjusted cost base. For bank and investment accounts, keep statements showing the maximum cost amount, year-end amount, gross income and gains or losses required by the applicable reporting method.
Newcomers should preserve reliable fair-market-value records from the date Canadian tax residence began because Canadian tax cost can be affected by the deemed acquisition rules. Cross-border pensions, trusts, jointly owned property and corporate interests may require separate analysis.
Deadline and late-filing risk
Form T1135 is generally due on the same date as the taxpayer’s income tax return or, for a partnership, the partnership information return. The form may be required even when no income tax return would otherwise need to be filed. Late, incomplete or inaccurate filing can create penalties, and some failures can extend the reassessment period.
When a missed form is discovered, gather the cost, income, ownership and filing history before deciding how to correct it. Penalty relief and voluntary-disclosure questions are fact-specific and should be reviewed promptly.
Year-end review checklist
- List every foreign account, investment, rental property, debt and ownership interest.
- Separate personal-use and active-business property from investment property.
- Calculate Canadian-dollar cost amount, not only year-end market value.
- Test the combined amount at every point in the year, including before sales.
- Determine whether Part A, Part B or dealer-aggregate reporting applies.
- Reconcile foreign income and gains to the income tax return.
- File by the applicable return deadline and retain proof of filing.
Official sources
This article provides general Canadian tax information and is not a substitute for tax, legal, financial or investment advice based on complete circumstances.