Should I report my foreign property in my Canadian tax return?

Q- I have a rental property back in China. Do I have to declare this when I file my income taxes? Why is it the Canadian government’s business what I own or have in another country?

A- In principle, Canadian residents are taxed on world income. If you have a property in your home country which is rented for part or full year you have to report rental income on your Canadian tax return for the year. Income properties are also subject to tax on capital gains on disposition or deemed disposition on death of taxpayer.

This may result in double taxation of rental income and capital gains in the foreign jurisdiction. Some countries require withholding tax to be paid on the non resident rental income. You may deduct from your federal tax payable a foreign tax credit for tax paid in foreign jurisdiction. To claim credit for foreign tax paid you must use the detailed tax calculation on form T2209.

Foreign Tax credit may or may not fully alleviate double taxation. Foreign tax credit can not exceed the foreign tax paid or Canadian Federal tax payable for the year on the income from sources in that country. Further Foreign tax paid must not include taxes on income which is treaty exempt in Canada. Canada has Treaties and Tax agreements with a number of countries including China.

Canadian are required to disclose their specified foreign property worth more that $100,000. Form T1135 must be filed with the T1 General tax return. Specified property includes deposits, tangible property, shares and bonds etc. failure to file Form T1135 can result in penalties, $25 per day minimum $100 to a maximum of $2500. False statements or omissions in Form T1135 are subject to higher penalties.

When you immigrated to Canada, any capital property you held at the time of immigration is deemed to have been acquired by you at a cost equal to its fair market value at that time. The deemed cost will be used in calculating your capital gains or loss with respect to this property  when it is actually sold or deemed to be disposed. You should prepare a list of such property and retain any information which you may have with respect to its fair market value. So that this information is readily available for use in future Canadian income tax return.

Taxation of foreign income is complex and I recommend you take advise of professional tax accountant.

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