Determining when to declare foreign property to tax authorities can be confusing, particularly with the extensive list of declarable assets. However, failing to declare foreign assets can result in hefty penalties. Here’s what you need to know about declaring foreign property in Canada.
Firstly, foreign property must be declared to the tax authorities every year, before April 30, unless it’s the year of immigration. You must also declare your foreign assets if their cumulative value exceeds CAD $100,000 or if you’re unsure if they need to be declared. It’s always better to err on the side of caution and declare your assets to the tax authorities to avoid penalties.
So, what assets do you need to declare? The list of declarable assets is long, but most practical cases involve:
- Real estate that you’ve bought or inherited, which is not primarily for personal use. This includes property that you lease out on a short or long-term basis, as well as empty or abandoned properties that are not used for shelter by you or a related person.
- Cash in foreign accounts, including funds in a foreign bank account or short-term investments such as a savings account.
- Cryptocurrencies, such as Bitcoin or Ethereum.
- Investments, such as life insurance policies with non-Canadian brokers, investments held in institutions outside Canada, and investments in foreign company accounts, even if held at a Canadian institution.
- Receivable assets, including stock options and loans to non-residents (excluding family members).
- Other properties, such as shares in a family business, plots of land, and other types of investments like works of art and collectibles.
However, there are some excluded assets that do not need to be declared, such as some retirement accounts like the IRA and US 401K, as well as pooled funds belonging to Canadian institutions.
It’s important to note that making a declaration of your foreign property has no impact on your tax return, but if your foreign assets generate income, such as rental or interest income, you must disclose it. After tax treaties and foreign tax credits, you may have little or no tax to pay on this income.
Failing to declare foreign assets can result in significant penalties. For instance, not declaring foreign property could result in a penalty of $2,500 per year, while failing to disclose income from foreign assets could result in a penalty of 10-20% of the undisclosed income, even if no tax is payable.
If you have failed to declare your foreign assets in the past, there is a voluntary disclosure program that allows you to cancel penalties and interest. However, the disclosure must be voluntary, and the omission must be deliberate and made in good faith to be approved.
In summary, it’s important to declare your foreign property to the tax authorities every year before April 30, and to disclose any income generated from foreign assets. Failure to do so can result in significant penalties. If you have failed to declare your foreign assets in the past, consider using the voluntary disclosure program to avoid penalties and interest.