In 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!
39 thoughts on “How to report foreign rental income in Canada?”
I already filed my taxes for 2018 and 2019. My accountant did not tell me that I was supposed to report my rent from a property in Dubai but they filed T1135 for me. When I read your article it looked I must report my income. Should my accountant pay for penalties for this mistake?
The information provided by you is not enough for me to give you an accurate answer.
You are required to report your worldwide income if you are a tax resident of Canada including rental income from anywhere in the world. I am not sure why your accountant did not inform you to report your foreign rental income. He may have some additional information so I suggest to get in touch with him/her and discuss the same. If you are a non-resident of Canada, you do not have to report the foreign rental income. You should first determine your tax residency status, tax residency and immigration residency status are two different concepts. You did mention that your accountant filed 1135 for you and it looks like you had a reporting requirement.
As far as your question about the penalties to be paid by your accountant is concerned, I can’t comment on that. Generally, when you sign off your tax return, you are responsible for the content of it. Get in touch with the accountant, you can amend tax returns or also explore the options of VDP if the amounts are substantial. If you need help in this matter or want to seek professional tax advice, feel free to reach us.
Hi, I am Canadian resident but have US rental property, my US rental income shows loss after calculate depreciation, since in US, the deduct CCA is mandatory, so my rental income show -1000, but Canada dont allow deduct CCA over the rental income, which is much different than US, so when my income shows negative for US tax return but when I fill “foreign rental income” for Canada, what number should I put there? “O” or “-1000”,
Dear Rose, in the U.S. depreciation, is “not” mandatory. Yes, it should be claimed in order to have losses as it is recaptured at the time of disposal. For Canada, CCA is optional. Absence the facts, I cannot provide specific advice on what number to put. Your best option is to check with your Accountant. Generally, you are going to prepare a t776 for that rental property in Canada as per Canadian rules regardless of what number you used in the U.S.
If you report it in canada? Is there any tax deduction for Canadian citizen for having properties overseas?
hi Javier, the foreign rental income and deductions related to it are reported as per the same rules as Canadian rental income.
I am Canadian but have US rental income. I was wondering what is your fee structure for doing Canadian and US taxes. Could you please email me. Thanks
Dear abbasi, thank you very much. We have sent an email.
If the rental income is lower than the mortgage instalments (on a European property), does one still have to pay tax on the rent itself?
Its not easy to comment on this. If there is a Net Loss, of course, there is no tax. However, you should ask your Accountant to prepare the statement for you.
I own a house in the UK and have declared my taxes in the UK for this rental income already. I was already exempt from paying these taxes in the UK because I am a British citizen and there is a tax exemption up to a certain threshold for UK citizens. So I can’t really identify this as foreign tax credit because I didn’t actually pay the foreign tax even though I declared it. I filled out the T1135 on my Canadian taxes already, do I need to fill out anything else? (It doesn’t seem fair that I should be taxed on this in Canada when I already filed in the UK, at the same time I can’t take advantage of the foreign tax credit because I was exempt from taxes in the UK). I would really appreciate your help.
Hello Arwa, the foreign tax credit is applicable only if it’s paid to a foreign country. As you mentioned, you didn’t pay any foreign taxes, so no foreign tax credits. T1135 is a separate form in addition to the income tax return in Canada. If you are a tax resident of Canada you must report your worldwide income and that includes rental income.
Hi, I landed in Canada as a PR in July 2021. Since I now work full-time for a Canadian company, and I live in Ontario, I consider myself a Canadian resident. I have a condo in my home country, and my mom is the co-owner of the condo, and we are renting it.
1. The tenant paid the rent in June, for the months from July to September. Since I became a PR after the tenant paid the rent, do I need to file tax on the rent which the tenant paid in June?
2. The tenant pays the rent directly to my mom, and I don’t ask my mom to give me the rent. Let’s say the monthly rent is approx. 300 CAD per month, when I file the tax, how much money should I declare as my rental income for a month? (My mom has nothing related to Canada for tax purposes.)
hi Nick, we generally don’t provide answers related to specific personal tax questions due to risk management issues. In short, the newcomers are taxed on the worldwide income for the portion of the year they were residents of Canada. If any prepaid rent was there, there should be an appropriate apportionment of the same. If the property is co-owned, there must be some sort of agreement regarding income and profits allocation.
I was going through your thread and found that even if you are a newcomer and you happen to be a deemed resident of canada, then you have to report and will be taxed for whole year.. not only on the portion of the year.
Wanted to check with you if i am correct?
No, you are not correct. A part-year resident is different than a deemed resident.
Hi Sir, Thank you for the great article and few general answers to your web-visitors. Wish you a long and growing audience !!
People spending part year in two countries have confusion about the following. Your insights will awaken them about this aspect.
Related to the above, if someone goes to other country for 3 to 4 months in a year, and their income there is from occasional investment in non-pension mutual funds (only accrued, not cashed out) and share (small amounts sold,), and occasional rent from a cottage (need not be declared unless it is fully rented whole year?), do they need to calculate the foreign income only for the remaining 8 to 9 months?
In case those who need to declare, is the 30% flat deduction from rental income of India ITO, included or excluded in this case ?
Thanks and best wishes !!
I have a property in Turkey and rental income. I am paying income tax in Turkey for my rental income.
In my last year tax filling ; there is a rental income and rental expense in the name of property tax! I am not sure my accountant did it right since property tax and income tax are different taxes. Income tax – even because of the rental tax- should be in foreing income credit? Right?
Property taxes and income taxes are two different things. Property taxes give you a deduction to arrive at net rental income. Income taxes give you a foreign tax credit.
Hello, I was a tax resident in Canada for year 2021 and had rental income from house property located in India. I found a treaty E102409 between India and Canada (Article 6) which mentions – “Income from immovable property (including income from agriculture or forestry) may be taxed in the Contracting State in which such property is situated. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.”.
So, does it implies that all of the rental income from house property in India can be taxed in India only? Is this income considered exempt from Canadian Tax?
Also, please share your fee structure for individual tax filing for 2021.
That means, India has the right to tax it first. Then Canada will tax it. Taxes paid should be used to calculate foreign tax credits.
Hi Maroof. I purchased a foreign property in 2017. In 2021, I moved to Canada to pursue a 2 year Masters degree. So I also have rental income now generated from my foreign property.
1. Do I have to file T1135 for “specified foreign property” for 2021?
2. Do I file T1135 for “specified foreign property” AND/OR T776 and foreign-sourced rental income?
Yes, report it on T1135. Also, report the rental income in Canada.
What if the value of the property mentioned is less than ?100K? Still need to file T1135?
The threshold for T1135 is $100,000 cost for all foreign properties in the current year. And it does include other assets such as US stocks held in your Canadian brokerage. Sometimes, it’s pretty easy to cross the threshold.
Hi there I am a Canadian looking to invest in a property rental in Portugal where I am buying the property as a foreign investor for no legal residency status. However I am obligated to report my rental income and file taxes there every year which I Will. Say after all my allowed deductions and filed and paid my taxes in Portugal my net profit is 15,000 Euros for the fiscal year. Am I going to be taxed on that as well in Canada on top of my work income here? Say I make $100K will it be 100K + 15K Euros is that not being double taxed? Please elaborate. Also the only thing I cannot deduct is the interest in the mortgage there in Portugal it cannot be deducted can I deduct that here if I am going to be taxed on the 15K? Thank you
hi Maurice, you should discuss this with your accountant. Generally, may not be specifically applicable to you, if you are a Canadian resident you must report all worldwide income. Period.
The rental income from the foreign property will be reported the same way as any Canadian property, using Canadian rules. Having said that, you may be able to claim interest on the mortgage. Capital cost allowance is optional. Like any other rental income, its added to your taxable income, whatever it is. The fed and prov taxes are calculated for your taxable income. Taxes paid to foreign country helps you claim foreign tax credits.
If the value of the foreign property is around $50K and the associated rental income is used to cover the expenses in that foreign country and no money is transferred to Canada, do we still report this as a rental income?
If yes which form should we use to report it?
Regardless of the income amount, profit or loss, you need to report the foreign rental income in Canada if you are a tax resident of Canada.
Hi Ahmet and Maroof,
I am wondering a similar thing. The CRA site here: https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/questions-answers-about-form-t1135.html#h3 says (I have edited to show the relevant example)
“Q: 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
rented out for part of the year without a reasonable expectation of profit for the purpose of recovering a portion of condominium expenses?
A: 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.”
I have a similar situation with property in the EU which I rent as vacation property to make enough to maintain and repair the property. I will ask my accountant, but it seems that if it is not for profit, but to maintain for personal use, there maybe an exemption?
This is correct if the property is a personal-use property i.e. primarily used for personal use or enjoyment is exempt from reporting requirements of T1135. You might want to look at ITA 54, to determine if the property mentioned by you is a personal-use property or not. Please keep in mind the exemption from T1135 reporting does not make any income exempt from reporting or taxation. So you must consult your accountant to determine both the income and asset reporting part.
You might find some rulings and case law helpful in determining if a property is personal-use property or not.
Plamondon v The Queen of 2011: To be personal-use property, a property must unequivocally be for the use and enjoyment of the taxpayer.
CRA Ruling 2014-0536261E5 Rental property used for both income earning and personal purposes may be personal-use property if used principally for personal purposes.
We receive a rental income from France each year, and before the money is sent to our account here in Canada the French government deducts 39% for income tax. Should we be paying even more tax to the Canadian government or is the 39% already paid to the French government enough for a significant minimalization of Canadian tax? Our accountant seems to believe that no matter how much the French government deducts the Canadian governments still takes their full cut.
Hi Ben, I don’t believe your accountant is correct here! On rental income, yes, you report the full rental income and corresponding deductions as per Canadian tax rules. Taxes paid to a foreign country are then available to be deducted as a Foreign tax credit, and/or foreign tax deduction depending on your situation.
Hi Maroof, thanks for your thoughts. To further elaborate, we were just reassessed for the 2020 return and the letter said,
“We disallowed your claim for a deduction under subsection 20(11) of the Income Tax Act for excess foreign tax paid. According to the Canada-France tax treaty, tax on rental property and investments are not eligible for this deduction.”
Is it possible he is claiming in the wrong subsection? It seems to imply that no deductions are eligible on income from rental properties.
This is something that can be only checked by looking into your tax returns and the notices. Subsection 20(11) may be an excess amount paid over and above the treaty rates on investment income. The foreign tax credit should be there in all cases. Further, you should look into the character of the income as well and how it was communicated to CRA.
Thank you for the detailed article. I am hoping you can help clarify a seemingly basic confusion I have.
I am a British national living in Canada. Recently moved and filing as Canadian resident for first time. I will report my rental and interest income I get in UK to report worldwide income. I also want to claim FTC.
UK tax year is from April to April whereas Canadian tax year is from Jan to Dec. I have two questions:
– Should I calculate income from Jan to Dec, or can I go by the UK tax year for income I get from there as well as foreign taxes paid in UK.
– for the income from April 2022 to Dec 2022 in UK, I can only file the UK taxes in June when I have all my documents. Canada tax due date is before that. How do I manage this timeline mismatch?
Any insight appreciated. Good day.
hi Niko, ideally you need to let your accountant make this calculation for you. The income for the tax period as in Canada should be carved out of your tax returns and foreign tax credits need to be apportioned. Taxpayers in similar situations end up paying additional taxes to CRA as the ‘foreign taxes paid’ review from CRA results in reassessment. To avoid any extra payment to CRA, and back and forth reviews/reassessments, you should try to get your foreign tax returns within the month of April once your UK FY is closed, at least the preparation part where you have the amounts needed for the FTC calculation. CRA runs these reviews most of the time after July or August, could be as early as you file! PLEASE NOTE this is not tax advice, you must consult an accountant or trust your sound judgement before making any decisions.
I am a Canadian living in the USA with a permanent resident status – ie Green card
I own some rental properties in my name in Toronto (1)and Winnipeg (2) that I declare on my US Tax forms. Do I also have to file an income tax form with the Canadian Revenue service as well even though the countries have a tax treaty?
If you have a rental property in Canada, you need to file a Sec 216 tax return to claim deductions against your gross rent. Rent from real property is a Canadian-sourced income. Sec 216 tax returns must be filed within a certain time period to avoid Gross rent being taxed without any deductions. First, you have to pay taxes in Canada, if any, then you have to report the same income in the United States, using the U.S. tax rules on Schedule E of your tax return and claim foreign tax credit on Form 1116. The one who is paying you these rental payments must withhold taxes from these payments. For a reduced withholding, you need to send in Form NR6 to CRA and wait for their approval.