Foreign Property Reporting: T1135 Compliance for Canadian Businesses

By Bader A. Chowdry, CPA, CA, LPA | Insight Accounting CPA

For Canadian businesses and individuals with international investments, Form T1135 (Foreign Income Verification Statement) represents one of the most complex and frequently misunderstood tax compliance requirements. The CRA has significantly enhanced its enforcement of foreign property reporting in recent years, making compliance more critical than ever for businesses operating in Mississauga, the GTA, and across Ontario.

At Insight Accounting CPA, we guide businesses through the intricacies of T1135 reporting, ensuring accurate disclosure while minimizing compliance risk. This comprehensive guide explains who must file, what must be reported, and how to navigate this complex requirement effectively.

Understanding T1135: What is Foreign Property Reporting?

Form T1135 is an information return that Canadian residents must file to report specified foreign property with a total cost exceeding CAD $100,000 at any time during the taxation year. This requirement applies to both individuals and corporations, including holding companies commonly used by business owners in Ontario.

Key Compliance Thresholds

The $100,000 threshold is based on the total cost of all specified foreign property throughout the year, not the fair market value at year-end. This distinction is crucialmany taxpayers mistakenly calculate based on current value and miss the filing requirement.

If your specified foreign property cost exceeded $100,000 at any point during the year, you must file T1135, even if the year-end value is below the threshold due to market fluctuations.

Who Must File?

T1135 filing requirements apply to:

Canadian resident individuals with foreign property exceeding $100,000
Canadian corporations (including CCPCs) with specified foreign property
Trusts resident in Canada with qualifying foreign property
Partnerships where all members are Canadian residents

For business owners in the GTA operating through holding companies, this often means multiple T1135 filingsone for the corporation and potentially one personally if you hold foreign property in your own name.

What Constitutes Specified Foreign Property?

Understanding what must be reported is essential for T1135 compliance. Specified foreign property includes a broad range of assets held outside Canada.

Property That Must Be Reported

Foreign bank accounts and deposits
Shares of foreign corporations (including private companies)
Debt obligations issued by non-residents (bonds, debentures, etc.)
Interest in foreign trusts
Real property located outside Canada
Tangible property situated outside Canada (art, jewelry, etc.)
Foreign mutual funds and ETFs
Cryptocurrency held on foreign exchanges
Options, futures, and other derivatives related to foreign property

Exempted Property

Certain foreign property is exempt from T1135 reporting:

Property used exclusively in an active business carried on by the taxpayer
Personal-use property (vacation homes valued under $100,000 cost)
Property of an authorized foreign bank used in Canadian banking business
Foreign currency held for personal use (e.g., in foreign bank accounts for travel)

The “active business” exemption is particularly relevant for Ontario manufacturers and technology companies with foreign operations. However, the CRA scrutinizes this exemption carefullythe property must be used exclusively in active business operations, not passive investment activities.

T1135 Reporting Methods: Simplified vs. Detailed

Form T1135 offers two reporting methods depending on the total cost of your specified foreign property.

Simplified Reporting (Property Costing $100,000 to $250,000)

If the total cost of all specified foreign property is between $100,000 and $250,000 throughout the year, you may use the simplified reporting method, which requires:

Country where property is located
Type of property (by category)
Total cost amount for each category
Maximum cost during the year

This method significantly reduces the administrative burden for smaller foreign holdings.

Detailed Reporting (Property Exceeding $250,000)

When the total cost exceeds $250,000 at any time during the year, detailed reporting is mandatory. This requires specific information for each foreign property, including:

Country code
Foreign currency code
Type of property (8 categories)
Name of foreign institution or entity
Cost amount (in Canadian dollars)
Year-end fair market value
Income earned (interest, dividends, capital gains)

For business owners in Mississauga with diversified international portfolios, detailed reporting can become complex, requiring careful tracking of acquisition dates, foreign exchange rates, and income attribution.

Common T1135 Compliance Mistakes

1. Miscalculating the $100,000 Threshold

The most frequent error is using fair market value instead of cost to determine the filing threshold. The CRA is clear: the threshold is based on the total cost of specified foreign property at any time during the year.

Example: A GTA business owner purchases US stocks for $120,000 CAD in March. By December, the portfolio value has declined to $85,000. Despite the year-end value being below $100,000, T1135 must be filed because the cost exceeded the threshold during the year.

2. Overlooking Foreign Bank Accounts

Many Canadian residents maintain foreign bank accounts for business or personal reasons. Even if the account balance fluctuates below $100,000, if the aggregate cost of all foreign property (including this account) exceeds the threshold, the account must be reported.

3. Failing to Report Foreign Private Company Shares

Shares in foreign private corporationscommon for entrepreneurs with cross-border business interestsmust be reported. This includes shares in US LLCs, foreign holding companies, or offshore structures.

4. Cryptocurrency Reporting Gaps

Cryptocurrency held on foreign exchanges constitutes specified foreign property. Many taxpayers fail to report Bitcoin, Ethereum, and other digital assets, creating significant compliance risk as the CRA enhances its crypto enforcement.

5. Ignoring Property Held in Foreign Trusts

If you are a beneficiary of a foreign trust that holds specified foreign property, you may have T1135 reporting obligations even if you don’t directly control the assets. This is particularly relevant for estate planning structures used by high-net-worth families in Ontario.

Penalties for Non-Compliance

The CRA imposes substantial penalties for T1135 non-compliance, making accurate and timely filing essential.

Failure to File Penalties

If you fail to file Form T1135 by the deadline:

$25 per day late-filing penalty (minimum $100, maximum $2,500)
These penalties apply per returnif your corporation and personal return both require T1135, penalties apply to each

Gross Negligence Penalties

For deliberate or reckless non-compliance, the CRA can assess gross negligence penalties of $500 per month (maximum $12,000) or 5% of the cost of the property, whichever is greater.

Criminal Prosecution

In extreme cases of willful evasion, the CRA can pursue criminal prosecution under the Income Tax Act, resulting in fines and potential imprisonment.

Third-Party Civil Penalties

Advisors who knowingly participate in false T1135 statements can face civil penalties, making it critical to work with experienced CPAs in Mississauga who understand foreign property reporting requirements.

T1135 Filing Strategies for Ontario Businesses

Strategy 1: Maintain Accurate Foreign Property Records

Implement a tracking system to monitor:

Acquisition dates and costs (in both foreign and Canadian currency)
Foreign exchange rates on transaction dates
Income generated (dividends, interest, capital gains)
Year-end fair market values

For businesses in the GTA with complex international holdings, consider quarterly reviews to ensure information is current and complete when filing season arrives.

Strategy 2: Understand the Active Business Exemption

If your Ontario business holds foreign property exclusively for active business operations (e.g., inventory, equipment, or accounts receivable), this property may be exempt from T1135 reporting.

However, the CRA’s interpretation of “exclusively” is strict. Mixed-use property (e.g., a warehouse used partly for business and partly for investment) may not qualify. Document the business purpose thoroughly.

Strategy 3: Coordinate Corporate and Personal Filings

Business owners often hold foreign property both personally and through corporations. Ensure T1135 filings are coordinated to:

Avoid duplicate reporting of the same property
Ensure all property is captured between personal and corporate returns
Maintain consistency in valuation and income attribution

At Insight Accounting CPA, we coordinate these filings to ensure comprehensive compliance for our Mississauga clients.

Strategy 4: Leverage Voluntary Disclosure for Past Non-Compliance

If you have failed to file T1135 in previous years, the CRA’s Voluntary Disclosures Program (VDP) allows you to come forward voluntarily and potentially avoid penalties.

To qualify:

The disclosure must be voluntary (not prompted by CRA contact)
It must be complete (all unreported years and property)
It must include payment of any related taxes owing

VDP offers a pathway to compliance for taxpayers who have inadvertently missed T1135 filing requirements, particularly relevant for business owners who were unaware of the obligation.

Strategy 5: Consider Restructuring to Simplify Reporting

For businesses with complex foreign holdings, consider restructuring to consolidate foreign property under a single holding entity. This can:

Reduce the number of T1135 filings required
Simplify tracking and valuation
Potentially qualify for exemptions under active business rules

Such restructuring should be undertaken with professional advice to ensure tax efficiency and compliance with both Canadian and foreign tax laws.

Special Considerations for Common Foreign Holdings

U.S. Real Estate

Ontario residents commonly own U.S. vacation properties or rental real estate. These must be reported on T1135 if the total cost of all foreign property exceeds $100,000.

Important: U.S. rental income must also be reported on your Canadian tax return, and you may be required to file U.S. tax returns (Forms 1040NR, Schedule E) even if you are not a U.S. resident. Coordinate Canadian and U.S. filings to ensure compliance and avoid double taxation through foreign tax credit claims.

Foreign Mutual Funds and ETFs

Many Canadian investors hold U.S.-domiciled ETFs for diversification and lower fees. These are specified foreign property and must be reported.

Additionally, certain foreign mutual funds may be classified as offshore investment fund property (OIFP), triggering additional tax consequences under section 94.1 of the Income Tax Act. Work with a knowledgeable CPA in the GTA to navigate these rules.

Cryptocurrency on Foreign Exchanges

Digital assets held on foreign exchanges (Coinbase, Binance, Kraken, etc.) are specified foreign property. Track:

Acquisition cost in CAD (use exchange rate on purchase date)
Year-end fair market value
Income earned (staking rewards, interest)

The CRA is increasing its focus on crypto compliance, making accurate T1135 reporting essential for taxpayers with digital asset holdings.

How Insight Accounting CPA Can Help

Navigating T1135 compliance requires specialized knowledge of international tax rules, foreign exchange calculations, and CRA reporting requirements. At Insight Accounting CPA in Mississauga, we provide comprehensive foreign property reporting services, including:

Complete T1135 preparation for individuals and corporations across the GTA
Foreign property tracking systems to ensure accurate cost basis and valuation
Voluntary disclosure representation for past non-compliance
Cross-border tax planning to optimize structure and minimize reporting complexity
CRA audit defense for T1135 and foreign income disputes

Our team, led by Bader A. Chowdry, CPA, CA, LPA, has extensive experience with international tax compliance for Ontario businesses. We leverage advanced technology and our patent-pending AI governance framework to ensure accuracy and efficiency in foreign property reporting.

Frequently Asked Questions (FAQ)

1. Do I need to file T1135 if my foreign property was only briefly above $100,000?

Yes. If the total cost of your specified foreign property exceeded $100,000 at any time during the yeareven for a single dayyou must file T1135.

2. Can I file T1135 late if I missed the deadline?

You can file late, but penalties will apply ($25/day, max $2,500). If you discover years of non-compliance, consider the Voluntary Disclosures Program to potentially avoid penalties.

3. How do I convert foreign currency to CAD for T1135 reporting?

Use the Bank of Canada exchange rate on the date of acquisition for cost amounts, and the rate on December 31 for year-end fair market value.

4. Are foreign pensions considered specified foreign property?

Generally, no. Foreign pension plans are typically exempt if they are similar to Canadian registered plans (RRSPs, RPPs). However, non-registered foreign investment accounts held within pension structures may require reporting.

5. What happens if I didn’t know I had to file T1135?

Lack of knowledge is not a defense against penalties, but it may be a factor in gross negligence penalty assessments. Consult a CPA in Mississauga immediately to assess your situation and consider voluntary disclosure if applicable.

6. Do I need to report property held in a U.S. IRA or 401(k)?

U.S. retirement accounts are generally exempt from T1135 reporting if they qualify as foreign retirement arrangements under Canada-U.S. tax treaty provisions. However, complex rules applyconsult with a cross-border tax specialist.

Conclusion: Ensure T1135 Compliance with Expert Guidance

Form T1135 represents a critical compliance obligation for Canadian businesses and individuals with foreign investments. With enhanced CRA enforcement and significant penalties for non-compliance, accurate and timely reporting is essential.

At Insight Accounting CPA, we provide expert T1135 preparation and foreign property compliance services for businesses across Mississauga, Toronto, and the GTA. Our team stays current with evolving CRA guidance and international tax rules to ensure your filings are complete, accurate, and compliant.

Don’t risk penalties or audit exposurecontact Insight Accounting CPA today for a comprehensive review of your T1135 obligations.

Ready to ensure T1135 compliance? Contact Insight Accounting CPA at (905) 270-1873 or visit insightscpa.ca to schedule a consultation.

About the Author

Bader A. Chowdry, CPA, CA, LPA, is the founder of Insight Accounting CPA Professional Corporation, a leading accounting firm serving businesses across Mississauga and the Greater Toronto Area. With extensive experience in international tax compliance and cross-border transactions, Bader provides strategic guidance to help Ontario businesses navigate complex foreign property reporting requirements. His firm’s patent-pending AI governance framework ensures precision and efficiency in tax compliance services.

Learn more at insightscpa.ca/about.