Did the 2024-2025 Canadian capital gains inclusion-rate proposal pass?

No. The Government of Canada cancelled the proposed inclusion-rate increase on March 21, 2025. The 50% inclusion rate remains in force. The lifetime capital gains exemption increased to CA$1.25M but only applies to qualifying small business shares and farm/fishing property, not foreign real estate.

Does the Canadian principal residence exemption apply to my Mexican property?

Generally no. The Canadian principal residence exemption applies if the property is ordinarily inhabited by you or your family during each year you claim it. Most Canadian-owned Riviera Maya property is a vacation home, snowbird residence, or rental, not 'ordinarily inhabited' enough to claim the exemption. Speak to a Canadian tax accountant if you spend the majority of the year in Mexico.

Can I avoid Mexican capital gains by gifting or transferring to a family member?

Mexico treats most family transfers as taxable events. Spousal transfers can be exempt with specific paperwork; parent-child transfers are generally taxable. The notario must apply Mexican capital gains rules regardless of the buyer-seller relationship. There is no Mexican equivalent of the US 'step-up in basis' at death for most foreign-held property.

What documentation do I need to keep for the 35%-on-net election?

Originals (or notarized copies) of: the escritura pública, every factura for major improvements (renovations, structural work, fixed installations), every CFDI invoice tied to the property's RFC if you have one, and proof of payment (wire transfer, not cash). SAT does not accept screenshots or bank statements alone.

What if Mexican capital gains are higher than my Canadian tax owed?

The treaty credit is one-way: Canada credits Mexican tax against Canadian tax owed on the same gain. If Mexican tax exceeds Canadian tax, the difference is not refunded. You can carry foreign tax credits forward in some cases, discuss with a Canadian accountant who handles cross-border returns.

Does the Quebec tax authority (Revenu Québec) treat this differently?

Quebec residents file both a federal T1 and a Quebec TP-1. The 50% inclusion rate is identical. The Quebec foreign tax credit mechanism mirrors the federal one, so Quebec residents typically receive both a federal and a Quebec credit for the same Mexican tax paid (split per Quebec's coordination rules with the CRA).

When does Mexican capital gains tax need to be paid?

Withheld at closing by the notario público. The seller never receives the gross proceeds; net proceeds (gross sale price minus Mexican capital gains, minus other notario fees) are wired to the seller. The notario then remits the withheld tax to SAT.

Capital Gains in Mexico for Canadian Buyers (2026 Guide)

Why this matters now (March 21, 2025 update)

On March 21, 2025, the Government of Canada cancelled the proposed change to the capital gains inclusion rate. The 50% inclusion rate that applied for decades remains the law. The lifetime capital gains exemption increased to CA$1.25M, but it only applies to qualifying small business shares and farm/fishing property, not to foreign real estate.

If you bought (or are about to buy) a property in the Riviera Maya, your eventual exit math is now stable: 50% of your realized gain enters your taxable income on the Canadian side. That predictability matters because the rule has been pre-announced, debated, and reversed twice in 18 months, most listing portals and timeshare salespeople still cite the wrong number.

Step 1, Mexican capital gains at closing (notario withholds)

When you sell Mexican real estate, the notario público handling the closing withholds capital gains tax for the Mexican tax authority (SAT) before disbursing your proceeds. Foreign sellers (non-resident for Mexican tax purposes) elect one of two regimes:

25% of the gross sale price, applied without deductions, withheld at closing.
35% of the net gain (sale price minus documented acquisition cost, indexed for inflation, minus deductible improvements with facturas), withheld at closing.

Which Mexican regime should you elect?

If you have facturas for the original purchase price (escritura) and major improvements, the 35%-on-net election is usually cheaper. If your acquisition cost is light or undocumented, the 25%-gross election may net you more.

Practical advice: keep originals of every factura, the escritura, the architect's invoices, the contractor's receipts, the kitchen renovation, the new roof, for the entire ownership period. SAT does not accept bank statements or photos of cash receipts as proof of cost basis.

Step 2, Canadian capital gains (T1 reporting)

On the Canadian side, the gain is calculated in Canadian dollars at the spot rate on the date of sale (and again at the spot rate on the date of acquisition for the cost-basis side). The CRA does not let you mix MXN and CAD figures.

Half of the realized gain (50% inclusion rate) gets added to your Canadian taxable income for the year, on top of your salary, pension, and other income. At the top combined federal-provincial bracket (Quebec ~53.31%, Ontario ~53.53%, Alberta ~48%), that means the Canadian tax owed on a CA$200K realized gain is roughly CA$50K-55K.

Step 3, The Canada-Mexico treaty credit (Article XIII)

You do NOT pay both governments in full. The Canada-Mexico tax treaty (in force since 1991, last protocol 2010) gives Canadian residents a foreign tax credit for Mexican tax paid on the same gain. You file the Mexican withholding receipt with your T1 and reduce your Canadian tax owed by that amount.

The mechanic is straightforward: Mexico has primary taxation rights on Mexican real estate gains. Canada taxes the same gain at the worldwide rate. The credit prevents double taxation but does not refund Mexican tax exceeding Canadian tax, i.e. if Mexico took 35% of net and that's more than your Canadian liability, the difference is gone, you cannot recover it from Canada.

Worked example: $400K USD condo bought for $300K USD

Assume you bought a $300,000 USD Puerto Morelos condo in 2022 and sell for $400,000 USD in 2027. Your Mexican capital gains under the 35%-on-net election: 35% × ($100K gross gain − ~$15K documented closing-related basis adjustments) ≈ $30K USD withheld at closing.

On the Canadian side at, say, 50% inclusion × CA$140K gain (FX-converted) × 50% top combined rate ≈ CA$35K Canadian tax owed.

After the treaty credit ($30K Mexican = ~CA$40K credit at the FX rate at sale): your Canadian tax owed is reduced by the credit and may be effectively zero, depending on the exact FX rates and your other income that year. Net effect: Mexican withholding is the dominant cost; Canadian tax is largely or entirely offset by the credit.

Practical levers Canadian buyers control

There are three things you control that materially change your eventual exit math:

Acquisition price documentation. Every peso of escritura, every factura'd improvement, lowers the 35%-on-net base. Foreign buyers routinely lose 5-10% of net by failing to keep facturas.
Holding period. There is no Mexican equivalent of the Canadian principal residence exemption for foreign-held property; longer holds compound but do not exempt.
Election timing. The 25%-gross vs 35%-net election is made at closing by the notario. Have your accountant model both before signing.

What we do for our Canadian clients

We provide a year-by-year basis worksheet from closing forward (escritura value + every facturable improvement, indexed) so when you eventually sell, the 35%-on-net election is properly evidenced. We also coordinate the notario's election decision with your Canadian accountant so the Mexican election aligns with your Canadian tax position.

This is one of the things foreign buyers consistently get wrong on Riviera Maya portals: they buy without a basis worksheet, lose every factura over five years, and end up forced into the 25%-gross election at sale. That can cost $20K+ on a $400K transaction.