Foreign Income Reporting in Canada: US Stocks, Foreign Accounts, and the T1135

Got US stocks in a non-registered account? A foreign bank account? Rental property outside Canada? The CRA wants to know — and the reporting rules are stricter than many people realize.

Here is what Canadian residents need to report and how.

The Worldwide Income Rule

Canada taxes its residents on worldwide income. It does not matter if the income was earned in the US, UK, Hong Kong, or anywhere else — if you are a Canadian tax resident, you report it all on your T1 return in Canadian dollars.

This includes:

Dividends from US or foreign stocks
Interest from foreign bank accounts
Capital gains on the sale of foreign securities
Rental income from property outside Canada
Foreign employment income or pension payments

Foreign Tax Credits: Avoiding Double Taxation

The good news: Canada has tax treaties with over 90 countries (including the US) that prevent you from paying full tax twice. Foreign tax you already paid can be claimed as a Foreign Tax Credit on your Canadian return.

For US stocks held in non-registered accounts, the US withholds 15% on dividends (reduced from 30% under the Canada-US tax treaty). You can claim that 15% withholding as a foreign tax credit on line 40500 of your T1.

US dividends in a TFSA do not benefit from the tax treaty — the US still withholds 15%, and you cannot recover it on your Canadian return. This is why financial advisors generally recommend holding US dividend-paying stocks in an RRSP rather than a TFSA.

The T1135: Foreign Income Verification

If you own specified foreign property with a total cost of more than CAD $100,000 at any point in the year, you must file a T1135 – Foreign Income Verification Statement.

Specified foreign property includes:

Foreign bank accounts
Shares of foreign corporations held outside an RRSP/TFSA/RRIF
Foreign real estate (not for personal use)
Bonds and debentures issued by foreign entities
Foreign trusts and partnerships

What is excluded:

Foreign property held inside registered accounts (RRSP, TFSA, RRIF, RESP, FHSA)
Personal-use foreign real estate (your vacation home used personally)
Shares of foreign affiliates (reported separately)

Note: if your foreign property cost is between $100,000 and $250,000 you may use the Simplified Reporting Method; detailed reporting is only required above $250,000. Also, the $100,000 threshold is based on cost (Adjusted Cost Base), not current market value. The T1135 is filed with your T1 return and due the same day (April 30 for most people, June 15 for self-employed). It is a reporting form only — you are not paying extra tax, just disclosing what you own.

Penalties for Late or Missing T1135

CRA takes T1135 compliance seriously. Penalties for failing to file are:

Late filing: $25/day up to $2,500 per year
Gross negligence or knowing failure: 5% of the cost of the foreign property (minimum $24,000)
False statements: Up to 5 years of prosecution

If you have missed filing T1135 in previous years, CRA’s Voluntary Disclosure Program can help you come into compliance with reduced or waived penalties.

How to Report Foreign Income

Foreign dividends and interest: Report on line 12100 (interest) and line 12000 (dividends) in Canadian dollars. Use the Bank of Canada exchange rate for the date of receipt.
Capital gains on foreign securities: Report on Schedule 3. Convert both your cost base and proceeds to Canadian dollars on the respective transaction dates.
Foreign rental income: Report on Form T776 (Statement of Real Estate Rentals).
Foreign pensions: Report on line 11500; most treaty pensions are partially or fully taxable in Canada.

FBAR: A Common Misconception for Canadian-US Dual Status

FBAR (FinCEN Form 114) is a US requirement — not a Canadian one. It applies to US citizens and green card holders with foreign financial accounts exceeding USD $10,000. If you are a Canadian citizen with no US ties, FBAR does not apply to you. However, if you hold dual citizenship or a US green card, you have both FBAR and T1135 obligations that must be managed carefully.

Holding foreign investments and not sure what to report? Book a consultation with us — we specialize in cross-border tax situations and will make sure you are fully compliant without overpaying.