Reporting Foreign Assets (T1135): Understanding the Foreign Income Verification Statement A Complete Guide by a Montreal CPA Firm Near You

Introduction

Any Canadian resident who owns foreign assets worth over $100,000 CAD (cost base) must file the T1135 Foreign Income Verification Statement every year. This reporting obligation applies to individuals, corporations, partnerships, and trusts, and CRA enforces it aggressively. Missing or incorrectly filing a T1135 can lead to severe penalties, audits, foreign income reassessments, and multi-year reviews. With global banking transparency at its highest point due to CRS and FATCA reporting systems, CRA now receives direct data from foreign banks, brokerages, and tax authorities. This guide explains who must file the T1135, what assets need to be reported, how to complete the form properly, and how to avoid CRA penalties for foreign property non-compliance.

Why Foreign Asset Reporting Matters

Owning foreign assets is not illegal — but failing to report them is. CRA uses T1135 data to detect unreported foreign income, offshore accounts, and cross-border investments. High-income earners, professionals, real estate investors, immigrants, and Canadians with U.S. or overseas financial ties are top audit targets. CRA can reassess 10+ years if they believe foreign property was hidden or foreign income was underreported. Filing the T1135 accurately protects against accusations of unreported foreign income and reduces audit risk.

Who Must File the T1135?

A T1135 is required if the cost base (not market value) of all foreign property exceeds $100,000 CAD at any time during the tax year. This threshold includes:
Canadian citizens and residents
new immigrants (after establishing residency)
self-employed individuals
corporations holding foreign investments
trusts and partnerships with foreign property
Even if the foreign assets generate zero income, the T1135 must still be filed if the cost base exceeds $100,000.

What Qualifies as “Specified Foreign Property”?

CRA requires reporting of:
foreign bank accounts
foreign brokerage accounts (stocks, bonds, ETFs)
U.S. and overseas rental real estate
cryptocurrency held on foreign platforms
foreign corporation shares not held inside a Canadian brokerage
foreign mutual funds
foreign life insurance policies with cash value
loans to non-residents
assets held in foreign trusts or foundations
Specified Foreign Property does not include:
personal-use property (cars, cottages used personally)
foreign employment income without assets
foreign pensions (e.g., U.S. Social Security)
TFSA, RRSP, RRIF holdings (because they’re Canadian-registered accounts even if investments are foreign)
Canadian mutual funds (held inside Canadian accounts)
Correct classification is essential — CRA often audits when foreign assets are miscategorized.

The Two T1135 Filing Methods

1. Simplified Method ($100,000–$250,000 cost base)

Requires:
country where the property is held
type of property
total income earned
gains or losses for the year
This is easier but still must be accurate.

2. Detailed Method (over $250,000 cost base)

Requires:
maximum fair market value for each asset
adjusted cost base
gross income for each asset
capital gain/loss for each asset
currency conversion details
foreign institution or corporation name
This method is complex and requires precise tracking, especially for portfolios.

Crypto Reporting Rules — A Growing CRA Priority

Cryptocurrency held on foreign exchanges is foreign property. Examples:
Binance
Kucoin
Kraken (U.S.)
Crypto.com (outside Canada)
These must be reported on the T1135 if the cost base exceeds $100,000 CAD. CRA increasingly audits crypto users who fail to disclose foreign accounts.

Foreign Rental Properties

Foreign real estate used to generate income must be reported on the T1135. Required details include:
property location
maximum value during the year
cost base
gross rental income
foreign expenses
capital gains upon sale
Foreign rental property is one of CRA’s highest T1135 audit categories.

Penalties for Missing or Incorrect T1135 Filing

The penalties are severe:
$25 per day late (minimum $100, maximum $2,500)
gross negligence penalty: $500 per month (up to $12,000)
additional penalties for repeated failure
interest charged on penalties
CRA may reassess up to 10 years+ for foreign income
T1135 penalties are enforceable even if the taxpayer owes zero tax.

How CRA Detects Unreported Foreign Assets

CRA receives foreign banking data via:
CRS (Common Reporting Standard) — over 100 countries
FATCA — U.S. citizen and U.S. account reporting
foreign tax authorities (OECD agreements)
cross-border brokerage data
CRA also compares:
T1135 entries vs foreign slips vs Canadian returns
foreign deposits vs reported income
asset sale values vs Canadian Schedule 3
If discrepancies appear, CRA launches foreign income audits quickly.

How to Correct Past T1135 Non-Compliance

If CRA has not contacted you, use the Voluntary Disclosures Program (VDP). VDP may:
remove penalties
reduce interest
prevent prosecution
If CRA has already contacted you:
file amended returns
file missing T1135s
prepare foreign income calculations
respond with supporting documentation
Foreign audits require precise records: bank statements, brokerage statements, purchase history, and sale details.

Tax Planning Tips for Canadians with Foreign Assets

use foreign tax credits to avoid double taxation
maintain detailed transaction logs
store original foreign statements annually
avoid holding mutual funds in foreign accounts (PFIC issues for U.S. citizens)
consider consolidating assets into Canadian institutions
establish residency and timing strategy for immigrants/expats
foreign estate and inheritance implications should be planned in advance
Proper planning saves thousands in penalties and double tax

Mackisen Strategy

Mackisen CPA Montreal assists clients with T1135 preparation, foreign income reporting, crypto reporting, rental property disclosures, foreign tax credit optimization, and VDP submissions for late filers. We ensure your T1135 is complete, audit-proof ,and fully aligned with CRA and global compliance rules.

Real Client Experience

A Montreal investor avoided a $12,000 penalty after Mackisen refiled eight years of T1135 forms through VDP. A business owner with foreign rental properties corrected past reporting and prevented gross negligence penalties. A crypto trader avoided CRA reassessment by reporting foreign exchange wallets properly. A newcomer from Europe needed T1135 support for foreign brokerage accounts and we structured full compliance without penalties.

Common Questions

Do all foreign assets need to be reported? Only Specified Foreign Property. Is foreign real estate included? Yes, if it earns income. Are RRSPs included? No. What about crypto? Yes, if held on foreign exchanges. Can I fix missed T1135 filings? Yes — through VDP if CRA hasn’t contacted you.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures clients remain fully compliant with foreign asset reporting laws. We protect you from penalties, reduce audit risk, and build tax-efficient global financial structures.

Tax Treaties and Double Taxation: How the Canada–U.S. Tax Treaty Protects You — A Complete Guide by a Montreal CPA Firm Near You

Introduction

When taxpayers earn income across borders—whether from employment, business activities, investments, rental properties, pensions, or corporate ownership—one of the biggest concerns is paying tax twice. Canada and the United States both tax worldwide income, which means cross-border taxpayers face the risk of double taxation unless treaty protections are applied correctly. The Canada–U.S. Income Tax Treaty is designed to prevent this. Understanding the treaty is essential for immigrants, dual citizens, cross-border workers, investors, U.S. citizens living in Canada, Canadians with U.S. property, and businesses operating in both countries. This guide explains how double taxation occurs, how the treaty provides relief, how tie-breaker residency rules work, and how to structure cross-border income for optimal tax efficiency.

Why Double Taxation Happens

Double taxation occurs when two countries both claim the right to tax the same income. For example:
a Canadian resident earning U.S. rental income
a U.S. citizen living in Canada earning Canadian employment income
a Canadian corporation with U.S. clients
a Canadian selling U.S. real estate
a Canadian investor earning U.S. dividends
Without the treaty, taxpayers could owe tax on the same income twice—once in Canada and once in the U.S. Proper application of treaty rules ensures that income is taxed once, in the correct jurisdiction, with credit applied in the other.

Key Concepts of the Canada–U.S. Tax Treaty

1. Residency Tie-Breaker Rules

When both countries claim residency, the treaty determines the true tax resident using:
permanent home
centre of vital interests
habitual abode
citizenship
mutual agreement between both tax authorities
This rule is crucial for snowbirds, dual citizens, and high-net-worth individuals with homes in both countries.

2. Foreign Tax Credits (FTC)

The treaty allows taxpayers to claim a credit in their country of residence for tax paid in the other country. This is the primary protection against double taxation. Both CRA and IRS allow FTC claims when supported by documentation.

3. Income Source Rules

The treaty assigns taxing rights based on where the income originates:
employment income → taxed where services are performed
rental income → taxed where the property is located
business income → taxed where a permanent establishment exists
pensions → taxed based on residency with exceptions
dividends/interest → withholding tax limits apply
capital gains → taxed where property is located or based on residency depending on asset type
Correct application prevents over-withholding and double filing errors.

4. Withholding Tax Reductions

The treaty limits U.S. withholding tax for Canadian residents to:
15% on dividends
0% on interest (in most cases)
0%–15% on royalties depending on the category
These reductions only apply when the taxpayer files the correct IRS forms (e.g., W-8BEN).

5. Permanent Establishment (PE) Rules

Businesses operating in the U.S. are only taxable there if they have a permanent establishment such as an office, fixed place of business, or dependent agent. Many Canadian consultants and online businesses pay unnecessary U.S. tax due to misunderstanding PE rules.

6. Pension and Retirement Income

The treaty coordinates tax treatment for:
CPP, QPP, OAS
U.S. Social Security
RRSPs and RRIFs
401(k) and IRA withdrawals
Proper planning can significantly reduce tax on cross-border retirements.

7. Capital Gains

Generally, capital gains are taxed in the country of residency, except:
U.S. real estate → always taxed in the U.S.
U.S. citizens → always taxed by IRS even if Canadian residents
Treaty provisions ensure credits are available in Canada for U.S. tax paid.

Common Cross-Border Situations and Treaty Solutions

1. Snowbirds Exceeding the U.S. Substantial Presence Test

Without treaty filings (Form 8840 or 8833), snowbirds may be considered U.S. residents for tax purposes. Proper treaty filings protect their Canadian residency.

2. U.S. Citizens Living in Canada

The treaty prevents double taxation by allowing credits for Canadian tax paid, even though the IRS continues to tax worldwide income.

3. Canadians Working in the U.S.

Employment income is generally taxed where the work is performed. The treaty prevents double taxation through FTC.

4. Canadians Investing in U.S. Stocks

Dividend withholding tax is limited to 15%. Capital gains are tax-free in the U.S. for Canadians (except real estate).

5. Canadian Business Selling to the U.S.

No U.S. tax applies unless the business has a permanent establishment in the U.S. Proper structuring protects profits.

6. Canadians Owning U.S. Rental Property

The rental income is first taxed in the U.S., then reported in Canada with FTC applied.

How Double Taxation Still Occurs Without Proper Filing

Taxpayers may still face double taxation when they:
fail to file FTC forms
miss U.S. withholding elections
misreport residency
ignore snowbird rules
fail to file treaty forms with IRS
miss foreign information returns (FBAR, Form 8938, 5471, 8858, 8621)
Incorrect filings cause CRA or IRS to deny credits.

Recordkeeping Requirements

To claim treaty benefits, taxpayers must keep:
foreign tax slips (1042-S, W-2, 1099)
U.S. tax returns
Canadian T-slips
rental statements
brokerage summaries
residency documentation
travel logs (for snowbirds)
CRA and IRS require detailed proof to grant FTC or treaty relief.

Mackisen Strategy

At Mackisen CPA Montreal, we guide cross-border clients through residency determinations, foreign tax credit optimization, U.S. IRS compliance, and CRA double-taxation relief. We prepare both Canadian and U.S. returns, complete treaty disclosures, resolve cross-border audits, and structure cross-border investments to minimize long-term tax burdens.

Tax Treaties and Double Taxation: How the Canada–U.S. Tax Treaty Protects You — A Complete Guide by a Montreal CPA Firm Near You