T1135: Reporting Your US Property to CRA

# T1135: Reporting Your US Property to CRA As a Canadian resident, owning rental property in the United States creates specific reporting obligations with the Canada Revenue Agency that extend beyond simply declaring your rental income. The T1135 Foreign Income Verification Statement is a critical compliance document that many Canadian landlords overlook—sometimes resulting in significant penalties. This guide explains who must file the T1135, what information you need to report, and how your US rental property fits into Canada's foreign property reporting regime. ## Understanding the T1135 Reporting Requirement The T1135 exists because CRA requires Canadian residents to disclose specified foreign property when the total cost amount of all such property exceeds CAD $100,000 at any time during the tax year. This threshold applies to the aggregate cost of all your foreign property—not just your US rental. Your US rental property qualifies as "specified foreign property" under subsection 233.3(1) of the Income Tax Act. This category includes real property situated outside Canada, shares of non-resident corporations, funds held in foreign bank accounts, and various other foreign assets. ### The $100,000 Threshold Explained The $100,000 threshold is based on **cost amount**, not fair market value. For real property, the cost amount generally equals your adjusted cost base—what you paid for the property plus certain capitalized expenses, converted to Canadian dollars at the exchange rate on the date of acquisition. This distinction matters significantly. If you purchased a US property for USD $80,000 when the exchange rate was 1.25, your cost amount would be CAD $100,000—right at the threshold. Even if the property has since decreased in value to USD $60,000, you still must file the T1135 because your cost amount exceeds the threshold. ### Who Must File You must file Form T1135 if you meet all of the following criteria: - You are a Canadian resident for tax purposes (individuals, corporations, trusts, and partnerships may all have filing obligations) - You owned specified foreign property at any time during the year - The total cost amount of all your specified foreign property exceeded CAD $100,000 at any time during the year Importantly, the $100,000 threshold considers all specified foreign property combined. Your US rental property worth CAD $85,000 combined with CAD $20,000 in a US brokerage account would trigger the filing requirement. ## Two Reporting Methods: Simplified vs. Detailed CRA offers two reporting methods on the T1135, depending on the total cost amount of your specified foreign property. ### Simplified Reporting Method (Under $250,000) If the total cost amount of your specified foreign property is under CAD $250,000 throughout the entire year, you may use the simplified reporting method. This requires less detailed information: - Check boxes indicating the types of property owned - The top three countries by cost amount - Aggregate cost amount - Aggregate income earned - Aggregate gain or loss on disposition For many Canadian landlords with a single US rental property, the simplified method reduces the compliance burden considerably. ### Detailed Reporting Method ($250,000 or More) If your specified foreign property exceeds CAD $250,000 at any point during the year, you must use the detailed reporting method. This requires property-by-property disclosure including: - Country where property is located - Maximum cost amount during the year - Cost amount at year end - Income or loss for the year - Gain or loss on disposition For your US rental property specifically (reported in Category 5 - Real Property Outside Canada), you'll provide the property's specific details rather than aggregated figures. ## What to Report for Your US Rental Property When completing the T1135 for your US rental property, gather the following information: ### Cost Amount Calculations Your cost amount includes: - Original purchase price (converted to CAD at the exchange rate on acquisition date) - Legal fees and transfer taxes paid on acquisition - Capital improvements (additions, renovations that extend useful life) Your cost amount does **not** include: - Mortgage principal (the cost is the property value, not your equity) - Current repairs and maintenance - Annual operating expenses ### Income Reporting Report the gross rental income earned from the property during the year. Convert USD amounts to CAD using either: - The Bank of Canada annual average exchange rate, or - The actual exchange rate on the date each payment was received CRA accepts either method, but you should apply your chosen method consistently from year to year. Note that the income reported on T1135 should reconcile with the rental income you report on Form T776, Statement of Real Estate Rentals. Any discrepancy may trigger CRA review. ### Disposition Reporting If you sold your US property during the year, report: - Proceeds of disposition (in CAD) - Capital gain or loss realized - Date of disposition This information should align with your Schedule 3 capital gains reporting. ## Filing Deadline and Penalties The T1135 must be filed by your income tax return due date: - **Individuals**: April 30 (or June 15 if you or your spouse/partner have self-employment income, though any balance owing is still due April 30) - **Corporations**: Six months after fiscal year end - **Trusts**: 90 days after trust year end ### Penalties for Non-Compliance CRA takes foreign property reporting seriously. Penalties for failing to file, filing late, or filing incomplete information include: - **Late filing penalty**: $25 per day, minimum $100, maximum $2,500 - **Failure to file**: $500 to $12,000 for the T1135, increasing by $500/month (up to 24 months) if CRA demands the return - **Gross negligence penalty**: $24,000 or 5% of the highest cost amount of unreported property, whichever is greater - **False statement or omission**: Up to $24,000 Additionally, under subsection 152(4) of the Income Tax Act, CRA can reassess your return beyond the normal three-year limitation period if you failed to file required foreign reporting forms—potentially indefinitely for the T1135. ### Voluntary Disclosures Program If you've failed to file T1135 forms for previous years, the CRA Voluntary Disclosures Program may allow you to correct your filing history with reduced penalties. Applications must be made before CRA contacts you about non-compliance. ## Interaction with Other Reporting Requirements The T1135 doesn't exist in isolation. As a Canadian owning US rental property, you likely have multiple overlapping reporting obligations: ### Form T776 Your net rental income (or loss) from US property must be reported on Form T776, Statement of Real Estate Rentals. The gross income figure should be consistent between T776 and T1135. ### Foreign Tax Credits US rental income is taxable in both countries. File Form T2209, Federal Foreign Tax Credits, to claim credit for US taxes paid against your Canadian tax liability. ### US Tax Obligations Remember that T1135 is a Canadian reporting requirement. Your US filing obligations (Form 1040-NR with Schedule E for rental income) are separate and governed by US tax law. ## Practical Tips for Accurate Reporting ### Maintain Currency Conversion Records Document the exchange rate used for every transaction. CRA accepts Bank of Canada rates (available at bankofcanada.ca). Keep records showing: - Acquisition date exchange rate - Annual average rate or transaction-date rates for income - Disposition date exchange rate ### Reconcile Between Forms Before filing, verify that: - T1135 gross income matches T776 gross rental income - T1135 disposition details match Schedule 3 reporting - Cost amounts remain consistent year over year (unless you've made capital additions) ### Track Cost Amount Adjustments If you make capital improvements to your US property, update your cost amount accordingly. Maintain documentation of improvements including invoices, payment records, and currency conversion calculations. ## Frequently Asked Questions ### Does my US mortgage affect the $100,000 threshold? No. The T1135 threshold is based on cost amount, not equity. If you purchased a property for CAD $150,000 with a CAD $120,000 mortgage, your cost amount is still $150,000—well above the threshold. ### What exchange rate should I use to calculate cost amount? Use the Bank of Canada exchange rate on the date you acquired the property. If you purchased your US rental on June 15, 2019, use that day's exchange rate to convert your USD purchase price to CAD for your cost amount. ### Do I need to file T1135 if my US property generated no rental income this year? Yes. The T1135 filing requirement is triggered by **ownership** of specified foreign property exceeding $100,000, regardless of whether the property generated income. A vacant property or property used personally must still be reported. ### I just realized I haven't filed T1135 for past years. What should I do? Consider applying