2 June 2026 STEP Roundtable Q. 15, 2026-1089181C6 - T1135 and Partnership

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: 1) In a given situation, who is required to report the specified foreign property? 2) What steps should be taken if Form T1135 was not filed appropriately?

Position: 1) A reporting entity must disclose its specified foreign property on Form T1135. 2) See below.

Reasons: 1) The law. 2) The law and previous positions.

2026 STEP CRA Roundtable - June 2, 2026

QUESTION 15. T1135 and Partnership

A partnership is established and operated under foreign law and holds foreign investment property (for example, foreign rental real estate). Canadian residents hold over 10% of the interests in the partnership.

Does the filing requirement in subsection 233.3(3) apply to the partnership and the Canadian partners, provided they are reporting entities pursuant to subsection 233.3(1)?

If the partnership is required to file Form T1135 – Foreign Income Verification Statement (“Form T1135”) to report its interest in the foreign property, what should be done if, in the past, the partnership did not report its interest in the foreign property, and instead relied on the fact that the Canadian partners have reported their ownership of the partnership interest on Form T1135?

CRA Response

For the purpose of our comments below, we have assumed that:

• Canadian residents are entitled to a proportional share of income or loss from the foreign partnership equal to the interest they hold in the partnership;
• Canadian residents are residents in Canada throughout the year;
• the only asset of each Canadian resident is its respective interest in the foreign partnership;
• the cost amount of the foreign rental real estate exceeds $100,000; and
• the foreign rental real estate held by the foreign partnership is not used or held exclusively in the course of carrying on an active business.

Reporting obligations

Pursuant to subsection 233.3(3), a reporting entity, as defined under subsection 233.3(1), must file a return in the prescribed form, in this case, Form T1135. This form requires that a reporting entity disclose its specified foreign property.

Pursuant to subsection 233.3(1), a “reporting entity” is defined as:

“reporting entity?for a taxation year or fiscal period means a specified Canadian entity for the year or period where, at any time (other than a time when the entity is non-resident) in the year or period, the total of all amounts each of which is the cost amount to the entity of a specified foreign property of the entity exceeds $100,000.”

For the purposes of this definition, we also note that paragraph (b) of the definition “specified Canadian entity” in subsection 233.3(1) includes a partnership where the total of all amounts, each of which is a share of the partnership’s income or loss for the period of a member that is a non-resident person or a taxpayer referred to in any of subparagraphs (a)(i) to (viii), is less than 90% of the income or loss of the partnership for the period. On the assumptions above, that condition would be met.

The expression “specified foreign property” is defined under subsection 233.3(1), and its paragraph (b) provides for “tangible property, or for civil law corporeal property, situated outside Canada”, which includes foreign rental real estate.

Assuming the foreign partnership is a reporting entity within the meaning of subsection 233.3(1), it would be required to report on Form T1135 its specified foreign property, including the foreign rental real estate.

By contrast, on the assumptions above, the Canadian resident partners would not qualify as reporting entities pursuant to subsection 233.3(1), as their only property is their interest in the partnership, and an interest in a partnership that is a specified Canadian entity is excluded from “specified foreign property” by virtue of the exception provided in paragraph (o) of that definition in subsection 233.3(1).

Failure to report

Subsection 162(7) imposes a penalty for failing to file Form T1135. Where the failure is made knowingly or under circumstances amounting to gross negligence, the penalties set out in subsections 162(10) and 162(10.1) apply. In the present case, the filing of Forms T1135 by the Canadian partners does not exempt the partnership from its separate obligation to file Form T1135.

Under Canada’s self-assessment system, the CRA encourages reporting entities and other taxpayers to come forward and voluntarily correct their tax affairs, either by filing an amended Form T1135 to correct past filing errors or, where the eligibility criteria are met, by making an application under the Voluntary Disclosures Program (“VDP”).

Additional information in regard to the VDP can be found at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/voluntary-disclosures-program.html

Serena Tan
2026-108918