Reporting Foreign Income and Foreign Assets in Canada (2025–2026): T1135, Foreign Tax Credits, and a CRA-Ready Checklist

If you’re a Canadian tax resident and you earn money outside Canada—or you hold assets outside Canada—your tax return may require more than just your Canadian slips.

Two key rules drive almost everything in this area:

1. Foreign income is taxable in Canada if you’re a Canadian tax resident (subject to credits/treaties), and
2. Some foreign assets trigger additional reporting, even if they produce little income (Form T1135).

This article gives you a practical, client-friendly checklist to report foreign income correctly, claim the right credits, and avoid common CRA problems.

Step one: confirm you’re a Canadian tax resident (because that’s what triggers worldwide reporting)

Canada taxes residents on income from all sources, including foreign sources. CRA’s residency framework is the starting point for determining whether worldwide reporting applies to you.

If your residency status is unclear (moving in/out, substantial ties in multiple countries, etc.), professional review is strongly recommended before filing—because your residency conclusion affects everything else (income, credits, and reporting forms).

Foreign income: what must be reported (and where it goes on the return)

CRA is explicit across its return line guidance: foreign income is part of your taxable reporting when applicable, and it must be reported in Canadian dollars.

1. A) Foreign employment income
   If you earned employment income outside Canada and it’s not on a Canadian T4, CRA directs it to line 10400 (Other employment income).
2. B) Foreign interest/dividends & other investment income
   CRA includes foreign interest/dividend income under line 12100 guidance for investment income reporting.
3. C) Other foreign income categories
   CRA’s “reporting income” hub outlines the general buckets you report on your return (employment/self-employment, pension, investment, etc.), including foreign sources within those categories.

Currency conversion (practical best practice)

• Keep the original foreign currency statements.
• Track your CAD conversion method consistently throughout the year (many taxpayers use a consistent annual approach for recurring items; large one-off transactions often benefit from conversion based on the transaction date).
  (CRA has detailed guidance in various contexts; the key is consistency and supportable records.)

Foreign tax paid: how to avoid “double tax” with the Foreign Tax Credit

If you paid tax to another country on income you’re also reporting in Canada, you may be eligible for a Foreign Tax Credit (FTC).

CRA’s instructions for line 40500 explain the process:

• Complete Form T2209 (Federal Foreign Tax Credits), and
• Enter the amount on line 40500.

You may also need the provincial/territorial foreign tax credit calculation (CRA references the provincial/territorial form in the same instructions).

Documentation you should retain

Keep proof of:

• The foreign income amount (slips/statements)
• The foreign tax paid (withholding statements, assessments, receipts)
  CRA notes you should keep supporting documents even when filing electronically.

Tax treaties: when foreign income is “included then deducted” in Canada

Sometimes, a tax treaty may make specific foreign income non-taxable in Canada. CRA’s line 25600 guidance explains that if you included foreign income in your return but it is non-taxable due to a treaty, you may claim a deduction on line 25600 and specify it.

This is a high-error area (treaty articles are technical). If you’re relying on a treaty position, keep a clear memo of the reasoning and supporting documents.

Foreign assets: when you must file Form T1135 (Foreign Income Verification Statement)

Form T1135 is not a tax calculation form—it’s an information reporting form. You can owe no additional tax and still have a T1135 filing obligation.

CRA’s guidance is clear: if the total cost amount of your specified foreign property exceeds $100,000 (CAD) at any time in the year, you may need to file T1135.

The $250,000 “simplified reporting” threshold

CRA explains that T1135 has a two-tier structure:

• Part A (simplified): total cost > $100,000 and < $250,000 throughout the year
• Part B (detailed): generally used when you don’t qualify for Part A (for example, higher total cost amounts)

Why the word “cost amount” matters

T1135 uses “cost amount,” which is not the same thing as market value. The practical result: you can cross the $100,000 threshold even if markets dip later.

T1135 penalties: why “I didn’t know” gets expensive

CRA’s penalty Q&A states that failing to file a foreign reporting information return can trigger a penalty that is the greater of $100 or $25/day, up to $2,500.

There are also more severe penalty regimes in certain circumstances (for example, gross negligence), so the safest approach is to identify the obligation early and file on time.

The practical CRA-ready checklist (what to gather before you file)

Use this checklist to get your foreign reporting “audit-ready”:

A) Foreign income checklist

• Foreign employment income summary (pay slips, annual statement, employer letter)
• Foreign investment statements (interest, dividends, realized gains/losses)
• Foreign pension statements
• Foreign rental income and expenses (if applicable)
• Foreign business/self-employment income records (if applicable)

B) Foreign tax paid checklist (for credits)

• Withholding tax slips (e.g., broker statements showing foreign withholding)
• Foreign tax assessments/notices
• Proof of payment (receipts, bank confirmations)
• Any carryforward/carryback schedules (if your situation involves them)

C) T1135 checklist (foreign assets)

• List of all “specified foreign property” and cost amounts
• Maximum cost amount during the year (to test the $100,000 threshold)
• Country of the property/institution
• Income generated by the property (if any)
• Gains/losses realized on disposition

D) Filing support & organization

• Currency conversion support (consistent method and backup rates)
• A one-page summary of your facts (countries, accounts, income sources, dates)
• PDF folder structure by year and category (Income / Tax Paid / T1135 / Notes)

Common mistakes we see (and how to avoid them)

1. Reporting the income but missing the foreign tax credit
   Result: you pay too much tax. Start with T2209 and keep proof of tax paid.
2. Missing T1135 because “the account isn’t that big.”
   The threshold is based on the cost amount, and it’s tested during the year.
3. Using a treaty without documenting it
   If you’re deducting treaty-exempt income at line 25600, document it properly.
4. Weak documentation on foreign withholding
   Keep broker statements and tax confirmations—CRA may ask later.
5. Late foreign reporting
   Penalties can apply even if you owed no tax.

FAQ

Do I need to file T1135 if I report all my foreign income?

Possibly, yes. T1135 is an asset reporting requirement triggered by the cost amount threshold, not by whether you reported income.

Where do I claim the foreign tax credit in Canada?

CRA instructs taxpayers to complete T2209 and report the federal amount on line 40500.

What’s the penalty for filing T1135 late?

CRA’s penalty guidance includes $25 per day (minimum $100; maximum $2,500) for certain foreign reporting information returns.

Source: CRA