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Tax Implications Of Owning Property Abroad

Did you know that if you own property abroad that cost in excess of $100,000 you must declare it on your tax return?
This is just one of the tax implications of owning property abroad.

According to the experts at Turbo Tax, you must fill out tax Form T1135 each year if you answer “yes” to the question: “Did you own or hold foreign property at any time in the year with a total cost of more than CAN$100,000?”. This form requires detailed information about your foreign property, including the income generated from it, its location and how much it costs you to own each year. This tax rule applies to those born and raised in Canada and newcomers alike and has been in place since 1997.

“One of the first modern resort areas, the Côte d’Azur offers an incredible diversity of landscapes along the beautiful Mediterranean coastline and continues to attract buyers from the Middle East, China, the U.S. and beyond. In early 2017, all lights are green for investment in the Côte d’Azur as property prices have returned to their fair value. A weak euro and record low interest rates are further attracting overseas buyers.” 

– Michaël Zingraf of Michaël Zingraf Real Estate in Cannes, France

It is, however, important to note that foreign property does not include just real estate and that some properties are exempt from this rule.

For example, it’s not necessary to declare foreign real estate valued in excess of $100,000 such as a cottage, that is for your personal use or any buildings you own that you operated a business out of. But if you use either that cottage or building as a rental property, it must be declared.

Should you fail to declare these properties, the experts at WeirFoulds LLP say you may face some harsh tax penalties, including:

  • 5% – 17% of taxes owing on late-filed returns
  • 10% of unreported income for repeat failures
  • 50% of the taxes owed on unreported income (if the taxpayer was grossly negligent)
  • 50% – 200% of any taxes that were sought to be evaded
  • $12,000/$24,000 for failure to file specified foreign property information return in certain circumstances

“There is very strong demand for wine estates from international buyers. It is indeed the most requested piece of real estate at the moment and there has been a constant increase in this trend over the past three to four years. Tuscany, and more specically the Chianti Classico region and the Bolgheri area are the most sought- after areas. Veneto (Amarone area), Piedmont (Barolo and sparkling wines) and Friuli- Venezia Giulia are very much requested as well, especially from Chinese clients.”

– Ricardo Romolini, Romolini Immobiliare Tuscany, Italy 

When you own a property outside of Canada, not only do you need to follow Canadian tax laws, you’ll also need to follow those of the country in which your property is located as those tax jurisdictions will want to know what you’re up to in their country.

If the property is for your personal use, just like in Canada, you won’t need to pay tax in that country. But if you’re using it as rental property then you will need to declare all monies raised in that country. The good news is that Canadians are allowed to claim any foreign taxes as a credit against the foreign incomes reported on our Canadian tax return, which means we could wipe out any Canadian tax on that foreign income.

All of this comes down to the fact that taxation should not necessarily be a deterrent in owning foreign property.

“Low interest rates have helped fuel the recovery in the current global economic cycle, which have in turn increased the value of most assets, from stocks and bonds to prime residential property and collectible assets”

–  Dan Conn, CEO, Christie’s International Real Estate

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