Holding Foreign Investments In A Non-registered Account

What Canadian investors need to know

Investing beyond the Canadian border can offer valuable diversification, access to global markets, and new growth opportunities. However, when you hold foreign investments in a non-registered account, it’s important to understand the unique tax implications and reporting requirements that come with them. 

These assets can trigger additional tax filing obligations and potential penalties if not handled correctly. This post covers what qualifies as a foreign investment, how different types of income are taxed, the CRA’s Form T1135 rules, and what risks to watch for so you can invest globally with confidence and compliance.  

What counts as a foreign investment for Canadians? 

Foreign investments refer to any investments held outside of your home country, such as: 

• US or international stocks (e.g., Apple, Toyota). 

• Foreign ETFs or mutual funds. 

• Real estate outside Canada. 

• Foreign bank accounts, trusts, or corporate shares. 

• Crypto held on foreign platforms, dependent on tax interpretation. 

CRA foreign reporting requirement - form T1135 

If the total cost of your foreign property exceeds $100,000 CAD at any point in the year: 

• You must file a T1135 annually. 

• Applies even if there is no income from these assets. 

• Non-compliance can result in penalties up to $2,500+. 

Tax treatment of foreign investments for Canadians 

• Dividends – Fully taxable.

• Interest – Fully taxable.

• Capital gains – 50% of the gain is taxable, reported in Canadian dollars.

• Foreign taxes paid – May be claimed as a foreign tax credit to help avoid double taxation.

• Currency conversion – All income, gains, and losses must be reported in Canadian dollars using the Bank of Canada exchange rate (daily or annual average, depending on the type of income). 

The most commonly held foreign investments by Canadians are U.S. based assets.

Let’s take a closer look at how these can impact your portfolio from both a tax and planning perspective: 

1. US withholding tax on dividends 

• The US government automatically withholds 15% on dividends paid to Canadian residents due to the Canada-US tax treaty. 

• This tax is not recoverable in a non-registered account, but you can claim it as a foreign tax credit on your tax return to avoid double taxation. 

2. Capital gains 

• You’ll pay capital gains tax on 50% of any profit when you sell US securities at a gain. 

• Gains/losses are calculated in Canadian dollars, so currency fluctuations can affect your taxable gains. 

3. Foreign reporting requirements 

• If the total cost of all your foreign property (including US securities) exceeds $100,000 CAD, you must file CRA Form T1135 "Foreign Income Verification Statement". Not filing when required can lead to severe penalties. 

Risks to be aware of for all foreign investments 

• Currency conversion risk. 

• Tax treaty issues, some countries don’t have favorable treaties. 

• Complex reporting. 

• Political and economic instability in the investment home country. 

Foreign investments can add valuable diversification and growth to your portfolio, but they come with added tax rules and reporting responsibilities. Whether you're holding U.S. stocks, international ETFs, or overseas property, it’s important to: 

• Understand how your income will be taxed in Canada. 

• Track the Canadian dollar value of your investments. 

• Report holdings properly if they exceed $100,000 CAD in cost. 

• Claim foreign tax credits where applicable to avoid double taxation. 

With careful planning, foreign investments can be a smart choice when it comes to building your wealth strategy. It is always advisable to use a qualified brokerage that provides T1135 support and foreign income reporting. 

TL;DR: 

• Foreign investments can boost diversification but come with tax and reporting rules: 

  • Tax: Dividends and interest are fully taxable; 50% of capital gains are taxed in CAD. 

  • US dividends: 15% withheld; claim as a foreign tax credit. 

  • Form T1135: Must file if foreign property cost >$100K CAD anytime in the year. 

  • Risks: Currency swings, complex rules, and possible foreign tax issues. 

  Key: Track values in CAD, file T1135 if required, and understand tax impacts. 

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