Canadian Taxes on Mexican Property: Both Sides Explained

The numbers at a glance

ISAI transfer tax (by city)

3% to 4%

Federal SRE permit

USD 1,233

Fideicomiso setup

USD 2,400 to 3,000

All-in closing costs

4.1% to 9.3%

T1135 filing threshold (Canada)

CAD 100,000

The Mexican side: what you pay in Mexico

Mexico taxes the property where it sits. Three stages, buy, hold, and sell, each grounded in our own statute-verified figures (all dated 2026, verify current rates, and confirm final numbers with your notario).

At purchase (one time)

• ISAI transfer tax (buyer pays), 3 to 4 percent by municipality. As of 2026, Puerto Morelos 3 percent and Cancun (Benito Juarez) 3 percent, Playa del Carmen 4 percent for deeds from December 10, 2025, and Tulum 4 percent (Akumal is in Tulum municipality, so 4 percent too). Applied to the highest of the price, the cadastral appraisal, or a certified appraisal. Quintana Roo municipalities have raised ISAI in recent Decembers, so verify the current rate.
• Fideicomiso, the coastal ownership vehicle. Foreigners cannot hold direct title within 50 km of the coast (Constitution article 27, fraction I), so they hold through a fideicomiso, a 50-year renewable bank trust under the Ley de Inversion Extranjera of 1993, articles 11 to 14 (article 11 the SRE permit, article 12 use, enjoyment and rental income, article 13 the 50-year renewable term). One-time bank setup runs roughly USD 2,400 to 3,000, bank-dependent; request a quote. Our fideicomiso guide owns the mechanics.
• Federal SRE permit, MXN 21,650 for 2026 (about USD 1,233 at 17.5586 MXN per USD on July 2, 2026). It re-indexes each January via the RMF Anexo 19, so verify.
• All-in closing costs run about 4.1 to 9.3 percent of price for a foreign buyer, computed across our own for-sale inventory (not a typed figure; the fixed fees weigh more on cheaper homes). A 2026 estimate to confirm with the notario. The closing-costs pillar owns the full breakdown.
• Canada: the purchase itself triggers no Canadian tax. It can, however, start your T1135 clock, covered below.

While you hold and rent it (annual, Mexican side)

• Predial (municipal property tax) is modest, roughly USD 150 to 1,000 a year on the cadastral value, with a January early-payment discount (about 25 percent in Playa del Carmen, 30 percent in Tulum, 15 percent in Cancun, 10 percent in Puerto Morelos). Foreigners pay the same predial as nationals. Date 2026, verify locally. Our predial guide owns this.
• Fideicomiso annual trustee maintenance, about USD 700 to 850 a year, separate from the one-time setup, bank-dependent.
• Rental income is taxed in Mexico (ISR plus IVA), and registering for a Mexican tax ID (RFC) cuts the ISR bite dramatically. Our vacation-rental guide owns the full picture (RFC, RESICO, IVA, the 6 percent state lodging tax, RETUR-Q). This pillar links it as the Mexican half of the cross-border rental story; it does not repeat the rates.

When you sell (Mexican side, summary only, deep-linked)

When you sell, Mexico taxes the gain where the property sits. Non-resident sellers elect either about 25 percent of the gross price or 35 percent of the net gain, withheld at closing by the notario for SAT; the residents-only casa-habitacion exemption generally does not help foreign owners, and the CFDI-since-2013 basis rule matters. This pillar summarizes and links out: the full mechanics live in the capital-gains-on-sale guide (all nationalities) and the capital-gains-canadian guide (the Canadian exit math). We do not re-derive the election table here.

The Canadian side: what you report in Canada

Canada taxes its residents on worldwide income, so the same Mexican property shows up on your Canadian return too. Four things a Canadian owner deals with, each cited to the CRA (accessed July 2026, verify current rules).

Form T1135, the ownership-disclosure return nobody joins to Mexico

• The rule, stated generally. Canadian residents who at any time in the year own specified foreign property with a total cost amount (adjusted cost base, not market value) over CAD 100,000 generally must file Form T1135, the Foreign Income Verification Statement. Where total cost stays under CAD 250,000 through the year, the simplified Part A may be used; at CAD 250,000 or more at any point, the detailed Part B is required. Source: CRA, Questions and answers about Form T1135, and Foreign Income Verification Statement, canada.ca, accessed 2026-07-05.
• Personal use versus rental, the centerpiece nuance. A Mexican home used primarily (more than 50 percent) as a personal residence is personal-use property and is generally excluded from T1135, even above CAD 100,000. A property held to earn income, or rented with a reasonable expectation of profit, IS specified foreign property and counts toward the threshold. A place rented only to recover expenses, with no reasonable expectation of profit, stays personal-use. This is a case-by-case question of fact, so confirm your characterization with an accountant. Source: CRA, Questions and answers about Form T1135, accessed 2026-07-05.
• Penalties, because T1135 is an information return that can bite even when you owe no tax. Simply filing late carries a penalty of the greater of CAD 100 or CAD 25 per day, to a maximum of CAD 2,500. Steeper penalties apply where a failure to file is knowing or grossly negligent. Source: CRA, Table of penalties, and Questions and answers about penalties, canada.ca, accessed 2026-07-05.

Foreign rental income on the T1 (every year you rent)

Canadian residents report worldwide rental income. Net Mexican rental income, rent minus deductible expenses computed on Form T776 (Statement of Real Estate Rentals, Guide T4036), goes on line 12600 of the T1, and gross rents on line 12599, converted to Canadian dollars. Use the Bank of Canada exchange rate on the day the income arose, or, because rent arrives at several points in the year, the average annual rate. This duty applies regardless of the CAD 100,000 T1135 threshold: the threshold governs only the information return, not the tax. Sources: CRA, Lines 12599 and 12600, Rental income, and Guide T4036; CRA, Federal foreign tax credit, line 40500 (currency-conversion rule); CRA, Questions and answers about Form T1135, accessed 2026-07-05.

The capital gain when you sell (Canadian side, summary and link)

• The inclusion rate. Canada includes half of a realized capital gain in taxable income. As of 2026-07-05, the inclusion rate is one-half (50 percent). The 2024 budget proposed raising it to two-thirds; the effective date was deferred from June 25, 2024 to January 1, 2026 (Department of Finance, January 31, 2025), then the increase was cancelled (Government of Canada, March 21, 2025), and the CRA reverted to administering the one-half rate. This rate has flipped repeatedly; verify the current rate.
• The Lifetime Capital Gains Exemption (CAD 1.25M) applies only to qualified small-business shares and qualified farm or fishing property, not to foreign real estate. The full Canadian exit math lives in the capital-gains-canadian guide; this pillar deep-links it rather than repeating the worked example. Sources: Department of Finance Canada deferral release, 2025-01-31; Prime Minister of Canada, cancels proposed capital gains tax increase, 2025-03-21, accessed 2026-07-05.

No principal residence exemption for a Mexican rental

The Canadian principal residence exemption requires the home to be ordinarily inhabited in the year by the owner or family, limits designation to one property per family unit per year, and counts only years the owner was resident in Canada. A property held mainly to earn income generally fails the ordinarily-inhabited test, so a Mexican rental generally cannot be sheltered. This is general, not a ruling on your property; route the question to a cross-border accountant. Source: CRA, Income Tax Folio S1-F3-C2, Principal Residence, and Principal residence and other real estate (line 12700), canada.ca, accessed 2026-07-05.

How it flows both ways

Picture a Canadian who buys a Riviera Maya condo, uses it some winters, and rents it the rest of the year.

At purchase, the money is all Mexican side: ISAI, the fideicomiso setup, the SRE permit, notario and registry fees, landing in the roughly 4.1 to 9.3 percent all-in band. Canada charges nothing to buy, but if the condo is held to earn rental income and its cost is over CAD 100,000, it becomes specified foreign property, so Form T1135 generally has to be filed each year it is held. If instead the owner keeps it purely for personal use, T1135 generally does not apply.

Each year it earns rent, Mexico taxes the rental income first (ISR, with IVA and the lodging tax handled through the Mexican rental rules). The same net rent, converted to Canadian dollars, is then reported on the Canadian T1 via Form T776. To stop the rent being taxed twice, the owner claims a federal foreign tax credit for the Mexican income tax paid. Because the credit is capped at the Canadian tax on that income, the owner effectively pays the higher of the two, not both.

When it sells, Mexico withholds ISR at closing through the notario, and Canada includes half the gain in income, with a treaty credit for the Mexican tax on the gain under Article 21. A Mexican rental generally does not qualify for the Canadian principal residence exemption. The detailed sale math is in the two capital-gains guides linked below.

Why this stays general: every number here depends on the year, the town, the property, and the owner's other income, which is exactly why this is general information and why the one step that matters most is a conversation with a cross-border accountant before you buy and again before you sell.

Frequently asked questions

Do Canadians have to report a Mexican property to the CRA?

It depends on how it is used and what it cost. Canadians who at any time in the year own specified foreign property with a total cost over CAD 100,000 generally must file Form T1135. A home used primarily as a personal vacation residence is generally excluded; a property held to earn rental income is included. General information, not tax advice; verify with a cross-border accountant. (CRA, Questions and answers about Form T1135, accessed 2026-07-05.)

Is my Riviera Maya vacation condo specified foreign property?

Not if it is used primarily (more than 50 percent) for your own personal use, in which case it is generally excluded from T1135 even above CAD 100,000. If you rent it with a reasonable expectation of profit, it becomes specified foreign property and counts toward the threshold. It is a case-by-case question of fact. (CRA, Questions and answers about Form T1135, accessed 2026-07-05.)

What is the T1135 threshold based on, value or cost?

Cost. The CAD 100,000 test uses the total cost amount (adjusted cost base) of all your specified foreign property, not its market value, measured at any time in the year. Part A (simplified) applies under CAD 250,000; Part B (detailed) at CAD 250,000 or more. (CRA, Questions and answers about Form T1135, accessed 2026-07-05.)

Do I owe Canadian tax on Mexican rent even if I am under the CAD 100,000 threshold?

Yes. Canadian residents report worldwide income, including Mexican rental income, on the T1 (net on line 12600 via Form T776) regardless of the T1135 threshold. The CAD 100,000 figure governs only the information return, not the tax on the income. (CRA, Questions and answers about Form T1135; Lines 12599 and 12600, accessed 2026-07-05.)

Am I taxed twice, once in Mexico and once in Canada?

Generally no. Mexico taxes the Mexican-source income or gain first; Canada taxes the same amount but gives a foreign tax credit for the Mexican tax paid (Form T2209, line 40500), under Article 21 of the 2006 Canada-Mexico tax treaty. The credit is capped at the Canadian tax on that income, so you effectively pay the higher of the two, not both. (CRA line 40500 and Folio S5-F2-C1; Canada-Mexico Convention 2006, accessed 2026-07-05.)

Which Canada-Mexico tax treaty applies?

The 2006 Convention, signed September 12, 2006 and in force April 12, 2007, which replaced the 1991 Convention. Article 6 covers immovable-property (rental) income, Article 13 covers capital gains, and Article 21 eliminates double taxation for Canada by the credit method. (Canada-Mexico Tax Convention Act, 2006, laws-lois.justice.gc.ca, accessed 2026-07-05.)

Can I use the Canadian principal residence exemption on my Mexican place?

Generally no. The exemption needs the home to be ordinarily inhabited by you or your family, allows only one property per family unit per year, and counts only years you were resident in Canada. A property held mainly to earn rent generally does not qualify. (CRA, Income Tax Folio S1-F3-C2, accessed 2026-07-05.)

What Canadian capital gains rate applies when I sell?

As of July 2026, Canada includes one-half (50 percent) of the gain in income. A proposed increase to two-thirds was deferred (Finance, January 31, 2025) then cancelled (Government of Canada, March 21, 2025), and the CRA reverted to the 50 percent rate. This has changed repeatedly, so verify. The lifetime capital gains exemption does not apply to foreign real estate. (Department of Finance and Prime Minister of Canada releases, accessed 2026-07-05.)

What happens if I file T1135 late?

Filing late carries a penalty of the greater of CAD 100 or CAD 25 per day, up to a maximum of CAD 2,500, and steeper penalties apply where the failure is knowing or grossly negligent. Because T1135 is an information return, these can apply even when the property earned no income and no Canadian tax was owed. (CRA, Table of penalties and Questions and answers about penalties, accessed 2026-07-05.)

Does Quebec change anything?

Quebec residents file both a federal T1 and a Quebec TP-1 and claim a separate Quebec foreign tax credit (line 409, Form TP-772-V), reduced by the federal credit already granted for the same Mexican tax. The 50 percent inclusion rate is the same. General information; a comptable transfrontalier can confirm your split. (Revenu Quebec, Foreign Tax Credit and line 409, accessed 2026-07-05.)

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