How to report income from rented out foreign property that was inherited? I'm confused about T1135, T776, Foreign Slip, and Foreign Tax Credit forms.

It would be more appropriate and simpler to report the net rental income (if greater than zero) on the Foreign Income slip as Other Income and the foreign taxes paid, if any.  The form T776 is designed and used for rental income of Canadian properties.  Consider all the provisions under the Income Tax Act for rental income that have no bearing on how that US income will be assessed, further, if there is a net loss it is simply stated as 'Zero' income, and not a loss.

The asset is still reported as an 'Foreign Property' on the T1135, if it is not used primarily for personal use.

Thank you for your help.  We have a rental property in Florida, filed our US taxes and have a loss of over $2,000.  I have filed our the T1135 and put our income on that form.  Will it create a problem if don't fill in anything on our Canadian taxes?

Note that the net rental income can also be negative.

Income reported on the Foreign Tax Credit and the T1135 will not change your total income. It is needed on the Foreign Tax Credit, so it will calculate the foreign tax credit properly. As for the T1135, this is merely information reporting for CRA, so it is separate from your income tax return.

On the T1135, you will need to report ALL foreign property and all corresponding income. Again, income entered on the T1135 is information for CRA, and doesn't affect your income tax return. The T1135 is filed separately from your income tax return (you will see a button to file the T1135 as well as your regular Netfile button).

We suggest that you enter your Foreign Rental Income on the T776 Form. If you do so, DO NOT enter it on the Foreign Slip. Please see my previous post regarding tips on filling out the T776.

I've also updated my previous answer. Hopefully, it is a bit clearer now:

https://turbotax.community.intuit.ca/replies/3290507

Thanks so much for this helpful answer. I have the same set up. Why would I enter the gross rental income under the Foreign Tax Credit and not the taxable income? Because that is what I would be paying the taxes on. No?

You are right, it should be net. I will clarify my answer, as there is a box to enter expenses.

Thanks for your super fast response. So would I enter the amount of taxable income calculated in the foreign country or what I've calculated on the T776? As CCA und laws vary from country to country the bottom line will change. Which amount do I enter?

I would enter the amounts used to calculate your foreign tax from that country. So use the gross amount and the amount of expenses you used to calculate the foreign tax you paid.

Thank you for your help.  We have a rental property in Florida, filed our US taxes and have a loss of over $2,000.  I have filed our the T1135 and put our income on that form.  Will it create a problem if don't fill in anything on our Canadian taxes?

Can you elaborate as to why you are NOT filling anything on your Canadian taxes?

We are now after talking to CRA and they said the loss will help our taxes here.  We are now filling out the T776 with our taxes.

Yes, that's what I would suggest too. But if you had income, you should file too, otherwise you will get audited. Information entered on the T1135 should also be reflected in your main Canadian T1 return.

How about if I had a net loss because the property was vacant during 9 month of the year?  How should I report it?  Thanks.

Enter your rental information on form T776  however, for your Foreign Rental Property enter your Canadian home postal code as the Postal Code for the foreign property and your home province for the Province. In the Address for the property, fill out as much of the property's address as will fit, including the equivalent of the postal code (such as a ZIP code for US addresses). Note that the CRA's NETILFE/EFILE servers will accept only the first 30 characters of the address.

 You must complete T1135 if the value of the property is more than $100,000.

@TurboTaxNicola If I paid foreign taxes, where should I put the taxes paid amount related to my foreign property?

Hi @TurboTaxNicola 

I have a question on T1135 Form. I am reporting using detailed method. 

I see a gross income column and I understand this amount shall be based on income earned minus all other expenses. In my case it is coming out to be negative. How shall I report this. This column doesn't take negative value or even (x) bracket. Shall I add positive value and write same amount in next column as Gain (loss).

How shall I report this negative income in T1135 Form

Thank you

MJ

You cannot report a negative value as a foreign income on T1135. The income on this form refers to gross income, not net income. You can report a negative value on the cap gain (loss) box.

Use form T776 to claim the expenses against your rental income. The T1135 amount will not be transferred to your return, it is for information purposes for CRA. 

I hope this was helpful

I always had this question and there is a lot of misguided information out there. I agree that T776 doesn't need to be filed if you are reporting the rental income in T1135. 

Great information. I started reported my rental income  the way you indicate in 2020 and did  the same this year. I note however in the summary this year that  the rental income is classified as "interest" whereas last year it was classified as "other".

Do you any idea why the classification has changed and if it has any bearing on the tax return from CRA point of view?

Many Thanks