Do I have to report my Israeli rental property on the Canadian T1135?

A Canadian owner of a rented Tel Aviv flat reports the rent to the Israel Tax Authority, feels compliant, and forgets that the CRA has its own paperwork with its own trigger. The T1135 is easy to miss precisely because it is not a tax, it is a disclosure. The penalties for skipping it, though, are real, and a rented Israeli property is exactly the kind of asset it targets.

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Detailed Explanation

The CRA requires a Canadian resident to file form T1135, the Foreign Income Verification Statement, for any year in which the total cost of their "specified foreign property" exceeded CAD 100,000 at any time during the year. The test is cost (adjusted cost base), not current market value, and it aggregates across all your qualifying foreign holdings, so an Israeli flat, a foreign bank account, and foreign securities are counted together. If the combined cost crossed the line even briefly, the form is due.

Whether your Israeli property counts turns on how you use it. Real estate held to earn income, a property you rent out, is specified foreign property and must be reported. Real estate held mainly for personal use, a vacation home you and your family occupy and do not rent commercially, is excluded from the T1135 regime. A flat that you rent to tenants falls squarely inside the reporting net. Where a property is part personal and part rented, the character can be mixed, and that is the sort of judgment worth confirming rather than guessing.

Reporting the property on the T1135 is separate from reporting the money it earns. As a Canadian resident you are taxed on worldwide income, so the Israeli rental profit goes on your Canadian return regardless of the T1135. Israel taxes that rent first, because the property is Israeli-source income: you can use the 10% track under Section 122 of the Income Tax Ordinance 1961, which charges a flat 10% on gross rent with no deductions, or the marginal-rate track with expenses. Canada then taxes the same profit but grants a foreign tax credit (form T2209) for the Israeli tax, so you are not taxed twice on the same dollars, though the credit is capped at the Canadian tax on that income. Coordinating the two filings, and choosing the Israeli track that leaves the cleanest Canadian credit, is where the planning sits. The Israeli reporting and banking side of holding Canadian-owned Israeli accounts and income is covered in our guide to Israeli bank accounts and CRA reporting for Canadian residents.

The reason to get this right is the penalty structure. The basic T1135 late-filing penalty is CAD 25 per day, to a minimum of CAD 100 and a maximum of CAD 2,500 per year, and it climbs steeply where the failure is knowing or grossly negligent. Because the property sits in Israel and the rent may flow into an Israeli account that is itself reported to the CRA under the Common Reporting Standard, the mismatch between what the CRA sees and what you filed is visible. Filing the T1135, even a nil-income year, keeps the disclosure clean.

In Practice: An Israeli rental property is specified foreign property for CRA form T1135 once your total foreign holdings exceed CAD 100,000 in cost. The Israeli rent is taxable first in Israel, commonly under the 10% flat track in Section 122 of the Income Tax Ordinance 1961, and again in Canada with a foreign tax credit on form T2209. The T1135 is due with your Canadian return, on 30 April, or 15 June if you or your spouse are self-employed, and late filing draws CAD 25 per day up to CAD 2,500.

Key Considerations

• A rented Israeli property is specified foreign property; a purely personal-use home is excluded from the T1135.
• The CAD 100,000 threshold is measured on cost across all your foreign holdings combined, not on market value.
• The T1135 is a disclosure form, separate from reporting the rental income on your return.
• Israeli rent is taxed in Israel first, then in Canada with a foreign tax credit on form T2209.
• Late or missed T1135 filing carries penalties up to CAD 2,500, and far more where the failure is grossly negligent.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• Your Israeli property switches between personal use and renting, making its T1135 character unclear.
• You have held the property for years without filing the T1135 and need to correct the position through a voluntary disclosure.
• You want to choose between the Israeli 10% and marginal tracks in a way that leaves the best Canadian foreign tax credit.

A qualified Israeli attorney working with your Canadian accountant should align the Israeli filing with the CRA position before you file either.

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Speak With an Israeli Attorney

We help Canadian owners handle the Israeli side of a rental property, register and report the rental income correctly, choose the right tax track, and produce the Israeli tax documentation your Canadian accountant needs for the T1135 and the foreign tax credit.

Contact us for a confidential initial consultation.