Form T1135 must be filed when a person answers ‘yes’ to the question “Did you at any time in the year own foreign property valued at over $100,000 (CAD)?”
However, some real estate is considered exempt from this question, and therefore doesn’t trigger — and need not be reported on — form T1135.
If the property is not considered ‘Specified Foreign Property’, then it can be omitted. When a person owns a residence outside Canada, it can be difficult to determine whether it counts or not. Even CRA provides examples rather than rules in this situation. Refer to their own information (below) to determine if your property is ‘Specified Foreign Property ‘ (i.e. reportable) or not (i.e. exempt).
The blue text below is taken directly from the Canada Revenue Agency (CRA) website.
38. If an individual owns a condominium in Florida that has a cost amount of $120,000, is the property specified foreign property for the purposes of Form T1135 if the condominium is:
- used exclusively by the taxpayer as a vacation property?
- rented out for eight months of the year with a reasonable expectation of profit and kept for personal use the other four months?
- rented out for part of the year without a reasonable expectation of profit for the purpose of recovering a portion of condominium expenses?
Specified foreign property does not include personal-use property. Personal-use property is generally defined as property owned by the taxpayer that he or she or a related party uses primarily for personal and enjoyment purposes. The CRA takes the view that “primarily” means more than 50%. Whether a particular property is primarily for personal use and enjoyment is a question of fact that is determined on a case-by-case basis.
In situation (a), the individual does not need to report the condominium since it is held primarily for personal use and enjoyment.
In situation (b), the property is not held primarily for personal use and enjoyment. As a result, it is a specified foreign property and has to be reported on Form T1135.
In situation (c), if there is no reasonable expectation of profit and the individual is merely recovering part of the condominium expenses, the CRA will consider it a personal-use property. As such, the property is not a specified foreign property and is excluded from the reporting requirements of Form T1135.
39. A taxpayer owns a four-unit property located outside of Canada. One unit is personal-use property of the taxpayer and the other three units are rented out with a reasonable expectation of profit. What are the Form T1135 reporting requirements? Assume the taxpayer owns other specified foreign property with a total cost amount in excess of the $100,000 reporting threshold.
If all of the units have roughly the same size and value, the property would be a specified foreign property and the taxpayer would have to report the entire cost amount of the property on Form T1135. Since 75% of the property is rented out for profit, it is not considered to be personal-use property.
40. If a Canadian corporation has a warehouse in England with a cost amount of $900,000 used to store business inventory, is the warehouse a specified foreign property?
A property that is used or held exclusively in the course of carrying on an active business is excluded from the definition of specified foreign property. If the warehouse is used only for storing inventory used in the corporation’s business, it does not have to be reported on Form T1135.
41. If a taxpayer acquires a specified foreign property for $500,000 with a down payment of $50,000 and the balance financed through a mortgage, does the taxpayer have to file Form T1135 if the property is his or her only foreign property?
Yes, the taxpayer still has to file Form T1135. Although the down payment is $50,000, the cost amount of the property, being $500,000, exceeds the $100,000 reporting threshold.
42. If a taxpayer enters into a purchase contract to buy a $500,000 specified foreign property that will be built and completed in two years, but has made a down payment of $50,000, does the taxpayer have to report it if it is his or her only foreign property?
The purchase contract should be reviewed to determine when the taxpayer acquires the property. If the title of the property has not passed to the taxpayer, the taxpayer does not have to report this foreign property.