Owning Property Overseas – A Complete Guide by a Montreal CPA Firm Near You

Introduction

More Canadians than ever are buying property overseas—vacation homes, rental properties, retirement residences, and investment real estate. But while purchasing a home abroad may feel simple, the tax obligations are not. Owning foreign property can create filing requirements in both Canada and the foreign country, trigger foreign rental income reporting, cause double taxation if not planned properly, and even lead to severe CRA penalties for missing foreign reporting forms. This guide explains everything Canadians need to know about buying, owning, renting, or selling property outside Canada.

Legal and Regulatory Framework

Canadian residents are taxed on worldwide income, including property abroad. Rental income must be reported on the Canadian T1 return, and capital gains tax applies when the property is sold. Owning foreign property worth over $100,000 CAD triggers T1135 reporting under section 233.3 of the Income Tax Act. Foreign tax paid on rental income or capital gains may be claimed as a foreign tax credit under section 126 to avoid double taxation. CRA also uses international tax agreements and foreign reporting exchanges to track Canadian ownership abroad.

Key Court Decisions

In Thompson v. Canada, the courts reinforced that Canadian residents must report worldwide income regardless of source. In Bajgelman v. Canada, CRA successfully reassessed a taxpayer for failing to include foreign real estate in T1135 reporting. In Douglas v. Canada, penalties were upheld for failing to disclose foreign property. These cases highlight CRA’s strict enforcement of foreign property rules.

Reporting Foreign Rental Income

Canadians who rent out property abroad must report gross rental income in Canadian dollars, deduct allowable expenses (mortgage interest, property taxes, repairs, insurance, utilities, management fees), and calculate net rental income on Form T776. Rental losses may be allowed if there is a reasonable expectation of profit. Foreign tax paid on rental income can be claimed as a foreign tax credit to avoid double taxation.

Expenses and Capital Improvements

Ordinary repairs are deductible, while capital improvements (major renovations, additions, structural upgrades) must be added to the property’s adjusted cost base (ACB). Proper tracking is essential for calculating capital gains at sale. CRA expects receipts, invoices, contracts, and currency conversion records.

Foreign Reporting Requirements – T1135

If your worldwide foreign property (excluding personal-use property) exceeds $100,000 CAD in cost at any time during the year, you must file Form T1135. Foreign rental properties count as specified foreign property and must be reported. Missing T1135 filings results in penalties starting at $2,500 per year.

Selling Foreign Property

When selling, Canada taxes the capital gain: proceeds of sale minus adjusted cost base minus selling expenses. Even if the foreign country also taxes the gain, Canada still requires reporting—but a foreign tax credit may offset double taxation. The deemed acquisition rule applies to newcomers (property is deemed acquired at FMV on residency date). Currency fluctuations can significantly affect capital gains calculations.

Foreign Country Compliance

Many countries require: rental income returns, capital gains tax filings, property taxes, non-resident withholding tax, or registration with local authorities. Canadians must comply with foreign tax rules even if they pay tax in Canada. Non-compliance abroad can result in fines, property restrictions, or legal issues.

Owning Property Through a Company or Trust

Some Canadians hold foreign real estate through corporations or trusts for privacy or legal reasons. This may create additional reporting obligations such as: T1134 (foreign affiliates), T1135 (foreign property), Form 3520/3520-A for U.S. trusts, or foreign corporate filings. CRA audits these structures closely.

Inheritance of Foreign Property

Inherited foreign property must be reported at FMV at the time of inheritance for ACB purposes. Future capital gains will be taxable in Canada. Some countries impose inheritance or estate taxes; foreign tax credits may apply in certain cases.

Common Mistakes Canadians Make

Common errors include: failing to report rental income, ignoring local tax obligations, missing T1135 filings, incorrect ACB calculations, misunderstanding currency conversion, assuming foreign tax eliminates Canadian tax, failing to track improvements, and not planning for estate taxes abroad.

Mackisen Strategy

At Mackisen CPA Montreal, we help Canadians with foreign real estate navigate all tax obligations. We prepare rental income statements, calculate capital gains, optimize foreign tax credits, prepare T1135 filings, guide compliance in foreign jurisdictions, structure ownership tax-efficiently, and defend clients during CRA audits. Our expertise protects Canadians from penalties and double taxation.

Real Client Experience

A Montreal client renting out a European apartment avoided CRA penalties after we corrected missed rental reporting and filed T1135 forms. A family selling a U.S. rental property reduced capital gains tax through accurate ACB tracking and foreign tax credits. An investor with a vacation property used only part-time successfully demonstrated personal-use status and avoided rental reporting. A new Canadian resident correctly applied deemed acquisition rules after buying foreign property years before moving.

Common Questions

Do I have to report property I use only for vacation? No—personal-use property is not taxable unless sold, and does not trigger T1135. Do I pay tax in both countries? Often yes, but tax credits usually prevent double taxation. Do I report rental income even if not profitable? Yes. What if I inherit foreign property? You must report and track ACB for future gains.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures Canadians with overseas property stay compliant, tax-efficient, and protected. Whether you’re purchasing, renting, or selling abroad, we help you navigate every rule with confidence.

48. Investing in U.S. Stocks or Real Estate – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Thousands of Canadians invest in U.S. stocks, ETFs, rental properties, and vacation homes. While these investments can be highly profitable, they bring complex cross-border tax rules. Many Canadian investors don’t realize that U.S. dividends are subject to withholding tax, U.S. real estate sales trigger FIRPTA withholding, certain accounts require extra reporting, and CRA still taxes all worldwide gains. Misunderstanding these rules leads to double taxation, penalties, or missed deductions. This guide explains exactly how Canadians are taxed when investing in U.S. markets or property—and how to avoid costly mistakes.

Legal and Regulatory Framework

Canadian residents must report all worldwide income, including U.S. dividends, rental income, and capital gains. The Canada–U.S. Tax Treaty governs withholding tax, rental income taxation, capital gains, real estate dispositions, pension rules, and residency tie-breakers. U.S. real estate sales are subject to withholding under FIRPTA (Foreign Investment in Real Property Tax Act). Canadians investing in U.S. securities must also comply with CRA’s T1135 foreign asset reporting if holdings exceed $100,000 CAD in cost.

Key Court Decisions

In Caron v. Canada, the court emphasized correct foreign tax credit calculations for U.S. income. In Gaucher v. Canada, CRA successfully reassessed a taxpayer who failed to report U.S. rental income. In Karam v. The Queen, the buyer of U.S. real estate was held liable for FIRPTA withholding errors. These cases reinforce the importance of compliance and accurate reporting.

Investing in U.S. Stocks and ETFs

How U.S. Dividends Are Taxed

U.S. dividends paid to Canadians are subject to a 15% U.S. withholding tax under the Treaty. You must report the gross amount (before withholding) on your Canadian return. You may claim a foreign tax credit for the 15% withheld. U.S. dividends are fully taxable in Canada, unlike Canadian dividends which receive the dividend tax credit.

Capital Gains From U.S. Stocks

Canada taxes all capital gains from U.S. securities at the standard 50% inclusion rate. The U.S. does not tax capital gains for Canadians unless they are considered U.S. residents or have U.S. business connections.

Holding U.S. Stocks in Registered Accounts

• RRSP / RRIF: No U.S. withholding tax on dividends (Treaty exemption).

• TFSA: U.S. withholding applies; dividends are not protected.

• RESP / RDSP: Withholding applies.
  T1135 reporting applies if cost exceeds $100,000 CAD outside RRSPs/RRIFs.

Investing in U.S. Real Estate

Rental Income

U.S. rental income is taxed by the IRS, usually under two options:

1. Gross rental income taxed at 30% withholding, or

2. Net income taxed after expenses, requiring Form 1040-NR.
   Regardless of U.S. tax, the income must be reported in Canada with a credit for U.S. tax paid.

Selling U.S. Property – FIRPTA

When Canadians sell U.S. property, the buyer must withhold 15% of the gross selling price under FIRPTA and send it to the IRS. This is not the tax owed—it is a prepayment. You must file Form 1040-NR to determine the actual tax and obtain a refund of excess withholding. Canada also taxes the capital gain; foreign tax credits avoid double taxation.

U.S. Estate Tax Exposure

Canadians owning U.S. real estate or U.S. stocks may face U.S. estate tax upon death. Although the exemption is high (over $12M USD), Canadians must calculate a prorated exemption using the Treaty. Poor planning can leave families exposed.

State Taxes

Certain states impose taxes differently:

• Florida, Texas, Arizona: No state income tax.

• California, New York: Strict residency rules and aggressive rental taxation.
  State filings may be required when renting or selling.

Foreign Reporting – T1135

U.S. stocks, ETFs, and U.S. rental property count as specified foreign property and require T1135 reporting if total cost exceeds $100,000 CAD. RRSP holdings are exempt. Penalties for missing T1135 start at $2,500 per year.

Common Mistakes Canadians Make

Investors often: fail to report U.S. rental income; ignore FIRPTA rules at sale; forget to report capital gains in Canada; overlook state tax obligations; hold U.S. dividend stocks in a TFSA; miscalculate foreign tax credits; forget T1135 filings; or incorrectly depreciate U.S. rental property for Canadian purposes.

Mackisen Strategy

At Mackisen CPA Montreal, we manage full cross-border reporting for Canadians investing in U.S. assets. We prepare 1040-NR filings, manage FIRPTA certificates, prepare Canadian returns with proper FTC calculations, handle T1135 filings, optimize which accounts should hold U.S. stocks, and provide estate planning for U.S. situs assets. We ensure investors avoid penalties and minimize tax on both sides of the border.

Real Client Experience

A Montreal couple renting out a Florida condo avoided double tax after we applied Treaty provisions and filed 1040-NR and T1 correctly. An investor with large U.S. stock holdings avoided T1135 penalties after we restructured accounts. A seller of a U.S. rental property recovered most FIRPTA withholding through our timely filings. A high-net-worth client avoided U.S. estate tax exposure through proper restructuring.

Common Questions

Do I pay tax twice on U.S. dividends? No—foreign tax credits prevent double tax. Do I need a U.S. tax return? Only if rental income or FIRPTA applies. Are U.S. stocks in a TFSA tax-efficient? No. Do I need to report U.S. property to CRA? Yes—for income, capital gains, and T1135 when applicable.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps Canadians investing in the U.S. remain compliant, tax-efficient, and protected. Whether you own U.S. stocks, rental property, or plan to purchase a vacation home, we ensure full cross-border tax optimization.