How the Canada-Mexico Tax Convention works
The 2006 Canada-Mexico Income Tax Convention is currently in force (entered into force April 12, 2007; last amended January 11, 2008). Article 13 gives Mexico (source country) primary taxing right on capital gains from real property situated in Mexico. Article 22 gives Canada (residence country) the duty to credit Mexican tax against Canadian tax owed on the same gain. The result: you pay the higher of the two layers, not both stacked. Despite headlines about Canada's 2024 capital gains inclusion rate proposal (cancelled March 21, 2025) and the MLI multilateral instrument modifications (anti-avoidance only, doesn't cancel the underlying treaty), the Convention remains operational.
Canadian inclusion rate: 50% flat
For 2026 forward, the Canadian capital gains inclusion rate is 50% flat. Half your gain is taxable; the other half is tax-free. The Trudeau government's Budget 2024 proposed raising this to 66.67% on gains above $250K, but PM Carney announced cancellation March 21, 2025 and the December 2025 federal budget formally retired the increase. CRA reverted to currently-enacted 50% and is reassessing 2024-filed returns made under the proposed higher rate. The calculator applies 50% flat for all years, with a year-sold input retained for historical accuracy.
Mexican non-resident election: 25% gross vs 35% indexed
Per Ley del ISR Article 121, non-resident sellers can elect either (a) 25% on gross sale price (no cost basis documentation required) OR (b) 35% on indexed net gain after documented cost basis + improvements + INPC inflation indexation. The calculator computes both and flags the lower-burden option. The 35% indexed regime typically wins for sellers with significant documented improvements; the 25% gross regime typically wins for short-term holders or buyers without paper-trail-level cost basis. Your notario or Mexican tax preparer will confirm the optimal election at closing.
AMT (Alternative Minimum Tax) note
Effective January 1, 2024, Canada's AMT rules tightened: rate increased from 15% to 20.5%, exemption raised to approximately $173K (indexed to ~$177,882 for 2026), and AMT capital gains inclusion increased from 80% to 100%. High-income sellers with large gains may face AMT exposure even when regular-tax computation is correctly at 50% inclusion. The calculator surfaces an AMT warning when your Canadian taxable gain exceeds approximately $250K. AMT is not zero-sum: you can carry forward AMT paid for up to seven years to offset future regular tax. A cross-border tax advisor will compute the AMT alongside regular tax and advise on the right election.
Why this is an estimate, not a quote
Cross-border capital gains computation depends on documented cost basis (Mexican fiscal receipts), holding structure (individual direct title vs fideicomiso vs SA de CV), Mexican non-resident election timing, provincial top marginal rate (varies year to year), AMT exposure for high-income earners, T1135 foreign property reporting compliance, NR4 issuance from Mexican notario, and residency timing (snowbirds returning to Canada mid-year complicate the analysis). The calculator gives you a working estimate; a cross-border tax specialist gives you a defensible filing position. Always consult one before acting on these numbers.