The essentials of tax returns and foreign real estate

Real estate outside the country isn't immune from taxation, so be sure you understand what taxes you need to pay on any foreign property holdings.

The essentials of tax returns and foreign real estate

Real estate outside the country is not immune from taxation.

  • In fact, the Canada Revenue Agency is focused on unreported foreign income and property, so be sure to claim any foreign property holdings you may have to which taxes apply.

Today and in the past

In the past, these claims were relatively general and easy to file, but as the pressure for accurate income reporting has increased, the necessary information and documents have become quite specific in nature.

  • What property do you need to claim income on, and what are the other important concerns about tax returns and foreign real estate? Let's take a look.

Which real estate is taxable?

Not all foreign real estate is taxed.

  • If your foreign real estate is for personal use or being used by your existing business, it won't be taxed by the Canadian government.
  • However, if your foreign real estate is an income property — in most cases a rental property — then you must claim income on that property in your Canadian taxes.

Other foreign properties

Your foreign property may include things other than real estate.

  • Any income on those need to be declared in Canada as well.
  • Examples include any bank accounts held abroad, precious resource holdings, debt securities or shares of foreign companies.

The T1135 form

The T1135 form discloses the amount of income earned from foreign properties and investments.

  • It is concerned with specified foreign properties, which, as discussed above, do not include personal use property and the like.
  • In recent years, the T1135 has become much more detailed, and now includes very specific information about the holdings.
  • Note that this form is not part of the normal electronic filing of the tax return, so be sure to look into it if you have foreign investment properties, as you could be in a tough spot if you end up getting audited.

Foreign tax returns

You also need to make yourself familiar with the tax laws in the country where you hold your property.

  • It's likely the case that you have to pay taxes on the property in that country.
  • Many countries, including the United States, calculate the tax you owe based on how much time you spend in that country, so you may need to keep track of exactly how much time you spent there in a given year.
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