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Do you own foreign property, a foreign corporation and/or offshore accounts? See below more information on the tax implications of owing foreign property.

CRA is looking into Canadians with offshore accounts and foreign property.

Ensure you are filing form T1135 – Foreign Income Verification Statement if you own any foreign property over $100,000. The maximum penalty of not filing a T1135 is $2,500.

The form must be filed to report the ownership of most foreign property; including funds in a foreign bank account, foreign rental property and foreign stocks held in your Canadian, non-registered brokerage account.

Excluded are foreign securities held inside of pooled products, like Canadian mutual funds, or inside a registered account like an RRSP, RRIF, TFSA, RESP or RDSP. Also excluded is personal use of property, such as a vacation home, which is not ordinarily rented out.

However, keep in mind foreign dividends earned in a TFSA are subject to withholding tax from the source country. Also, Canadian-listed exchange-traded funds that own foreign stocks are also subject to withholding ax on the dividends earned in an RRSP.

As well, if a Canadian taxpayer owns a foreign corporation earning passive income (ie. Rental income, dividend income, interest income), they must abide the Foreign Accrual Property Income (FAPI) rules.

The earnings need to be reported for tax purposes on form T1134 and may need to be included in the taxpayer’s income for tax purposes in Canada.

Form T1134 must be filed within 15 months after the year-end. Furthermore, if foreign tax is being paid on passive income and the foreign country has a tax treaty with Canada, the taxpayer would receive a tax credit.

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