T1135 and your Indian property: what Canadians get wrong

The phrase that catches Canadians out is cost amount. Form T1135 does not ask what your Indian property is worth today. It asks what it cost you. Those are different numbers, and with inherited property they are very different.

When you have to file at all

You file T1135 if you are a Canadian resident and the total cost amount of your specified foreign property exceeded one hundred thousand Canadian dollars at any point in the year. Note the three parts of that test. It is cost, not market value. It is the total across all your foreign property, not per item. And it is at any point in the year, not just on 31 December.

The threshold is low enough that a single modest flat in an Indian city clears it comfortably.

What counts and what does not

Specified foreign property includes real estate held outside Canada, foreign bank accounts, shares of foreign companies and interests in foreign trusts. Your Indian flat, your plot, your commercial unit all count.

The important exclusion: property held primarily for personal use and enjoyment is not specified foreign property. A holiday home your family uses is arguably outside the regime. A flat you rent out is squarely inside it. The distinction turns on actual use, so if the property has been let at any point, treat it as reportable and talk to your accountant.

Working out cost amount for inherited property

This is where most of the confusion sits, and it is worth being precise.

If you bought the property, cost amount is broadly what you paid plus capital additions. Straightforward.

If you inherited it, you did not pay anything, so there is no purchase price to use. Canadian tax law generally treats you as having acquired the property at its fair market value at the date of the previous owner's death. That date of death value becomes your cost amount for T1135 purposes and your adjusted cost base for a future capital gain.

So the number you need is not today's value and not your late parent's 1980s purchase price. It is the market value of the property on the date the person died, expressed in Canadian dollars using the exchange rate on that date.

That is a retrospective valuation, and it is a standard job. We value as at a past date using the notified rates and recorded transactions of that period, with the working shown.

The India and Canada mismatch nobody warns you about

Your Canadian cost base is the date of death value. Your Indian cost base is the original owner's purchase price, or the 1 April 2001 value if they bought before that date.

The same property, two entirely different cost figures, both correct under their own law. When you eventually sell, you will compute one gain for the Canada Revenue Agency and a different gain for the Indian authorities. You are not being double taxed, because the treaty between the two countries provides for credit, but you do need both numbers evidenced. Families regularly commission both valuations at once, and it is cheaper to do them together.

Simplified or detailed reporting

Where total cost amount sits between one hundred thousand and two hundred and fifty thousand Canadian dollars, a simplified method is available. Above that, the detailed method applies and you report property by property, with the country, the maximum cost during the year, the cost at year end and any income or gain.

The detailed method is where a vague figure stops being survivable. You are stating a specific number against a specific asset.

Penalties, plainly

Failure to file attracts a penalty that accrues per month, with a floor and a cap, and the consequences escalate where the failure is knowing or grossly negligent. The reporting period can also stay open longer than usual where the form was not filed. None of that is a good outcome for an asset you may not even be earning income from.

The practical point is that T1135 is a disclosure obligation, not a tax charge. Filing it costs you nothing in tax. Not filing it is the expensive option.

What to give your accountant

• The date the previous owner died, if inherited.
• A valuation of the property as at that date, in rupees.
• The exchange rate on that date.
• Details of any capital improvements since, with dates.
• Rental income received, if any, and Indian tax paid on it.

Deadlines follow your personal return, so 30 April for most individuals and 15 June if you or your spouse are self employed, with any balance still due 30 April. Start the valuation well before that, because retrospective work takes longer than current valuation.

Rules change. Confirm the current thresholds and filing requirements with your accountant or on the Canada Revenue Agency site rather than relying on any article. What we provide is the defensible property number underneath the form.