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Form T1135 – Is it required for Canadian Snowbirds

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Just finished our Canadian taxes and Turbotax came up with a warning that as owners of a home in the USA, we needed to fill in Form T1135. The online form is available at http://www.cra-arc.gc.ca/E/pbg/tf/t1135/t1135-fill-14e.pdf. Was this really necessary?

The answer appears to be no, according to this Canada Revenue Agency document, Questions and answers about form T1135. The key is that ‘there is no reasonable expectation of profit’. See the relevant section, copied below. Point 3 is the one that applies to our situation. Of course, if we decided to no longer head south in the winter, and rented year round with an expectation of profit, that would be a different matter.

Real property questions

29. If an individual owns a condominium in Florida that has a cost amount of $120,000, is the property specified foreign property for the purposes of form T1135 if the condominium is:

  1. used exclusively by the taxpayer as a vacation property?
  2. rented out for eight months of the year with a reasonable expectation of profit and kept for personal use the other four months?
  3. rented out for part of the year without a reasonable expectation of profit for the purpose of recovering a portion of condominium expenses?

Specified foreign property does not include personal-use property. Personal-use property is generally defined as property owned by the taxpayer that he or she or a related party uses primarily for personal and enjoyment purposes. The CRA takes the view that “primarily” means more than 50%. Whether a particular property is primarily for personal use and enjoyment is a question of fact that is determined on a case-by-case basis.

In situation (a), the individual does not need to report the condominium since it is held primarily for personal use and enjoyment.

In situation (b), the property is not held primarily for personal use and enjoyment. As a result, it is a specified foreign property and has to be reported on form T1135.

In situation (c), if there is no reasonable expectation of profit and the individual is merely recovering part of the condominium expenses, the CRA will consider it a personal-use property. As such, the property is not a specified foreign property and is excluded from the reporting requirements of form T1135.