How to report foreign rental income in Canada

How to report foreign rental income in CanadaIn recent days, we have received a couple of inquiries from our blog subscribers and readers about the foreign rental income of Canadian residents. This post is for general information purposes and cannot be relied on to make any actionable decisions. It is always smart to contact professional individual tax preparation services in Canada.

This post focuses on rental income from foreign properties earned by individuals who are residents of Canada.

Canada taxes its residents on worldwide income. Any Canadian tax resident must report income from all sources, both Canadian and Foreign. If the cost of foreign properties is more than $100,000, the taxpayer must file form T1135, foreign income statement verification as well.

Reporting Rental income from foreign properties on Individual income tax return in Canada

  • File Statement of Real Estate Rentals with your Individual income tax and benefits return (T1) listing down all the rental income from foreign properties.
  • You are entitled to deductions as provided in the ITA to arrive at the Net Rental Income.
  • Claim foreign tax credits against the taxes paid to foreign countries. If you are using an accounting software your T776 will automatically help you calculating foreign tax credits.

Pro Tip: A couple of tax preparers have asked me to help them with troubleshooting linking of T776 with foreign tax credits. Most of the software does have the option to select a foreign address for the property, the key is to find that button! The software service provider can help with once you ask for this specific question. As soon as you pick the option it should be able to automatically link it to foreign income slips. We use CCH ifirm, so for us, it’s just a few clicks to link T776 with both foreign income and credit lines and to add it to F1135 as well.

File form 1135, foreign income statement verification

Reporting rental income from foreign properties does not end the tax filing requirements in Canada. If foreign property owned by you has a cost of more than $100,000 during the tax year, you must file Form 1135, foreign income statement verification. You can further opt to use the simple or detailed method of reporting.

The income reported on F 1135 is “Gross” and this is only for reporting purposes. This form is not linked to T1 but it has the same deadline as T1.

Not filing form 1135 can result in steep penalties with a maximum penalty of $2500 per filing. If you have missed out on filing Form 1135 for past years you might still be able to file under voluntary disclosure program.

Maroof HS CPA Professional Corporation is a CPA firm located in Greater Toronto Area providing comprehensive income tax services for individuals and corporations. Get in touch with us!

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