Understanding the Tax Treaty Between Canada, the U.S., and Mexico: What Property Owners and Expats Need to Know

Owning property or earning income in a foreign country often comes with concerns about double taxation—being taxed twice on the same income in both your home country and the country where the income is generated. Fortunately, tax treaties exist to help prevent this.

If you’re a Canadian or American citizen earning income in Mexico—whether from property rentals, investments, or business—you may benefit from international agreements designed to avoid double taxation and clarify your obligations.

Here’s what you need to know about the tax treaties between Canada, the U.S., and Mexico.

1. What Is a Tax Treaty?

A tax treaty is a bilateral agreement between two countries that defines how income earned across borders is taxed. It ensures that:

• You don’t pay taxes on the same income twice

• You understand which country has taxing rights over different types of income

• You may qualify for reduced tax rates or exemptions

2. U.S.–Mexico & Canada–Mexico Tax Treaties

Both the U.S.–Mexico and Canada–Mexico tax treaties help individuals and businesses avoid double taxation on income such as:

• Rental income

• Capital gains from property sales

• Dividends and interest

• Professional or self-employment income

These treaties:

• Allow taxpayers to claim foreign tax credits

• Establish rules for which country gets taxing rights over specific income types

• Do not exempt you from paying tax in Mexico if the income is earned there

3. Real Estate Income: A Common Scenario

✅ Example: Jane, a Canadian Property Owner in Playa del Carmen

Jane, a Canadian citizen, owns a condo in Playa del Carmen that she rents out short-term on Airbnb. In 2024, she earns $30,000 CAD in rental income.

• She pays 25% flat withholding tax in Mexico (since she hasn’t registered with SAT as a Mexican taxpayer), which amounts to $7,500 CAD.

• Jane also reports the full $30,000 CAD as foreign rental income on her Canadian tax return.

• To avoid paying tax twice, she claims a foreign tax credit in Canada for the $7,500 she already paid in Mexico.

• This credit reduces her Canadian tax liability, ensuring she is not taxed again on the same income.

If Jane had registered in Mexico for a tax ID (RFC), she may have been able to deduct expenses and pay a lower effective tax rate there—but also take advantage of the treaty more efficiently through proper reporting.

4. Practical Tips for Property Owners

✅ Keep documentation of all Mexican tax payments (facturas, official receipts)
✅ Work with a Mexican accountant for local compliance and filings
✅ Report worldwide income in your home country and claim available credits
✅ Consult a cross-border tax advisor for proper strategy and compliance

5. Final Thoughts

Tax treaties are valuable tools for international property owners—but they don’t remove your obligation to follow Mexican tax laws. Instead, they help you avoid overpaying and stay compliant in both countries.

Whether you’re an expat, snowbird, or investor, make sure you’re supported by the right professionals.

Renanza Real Estate Services can help you find the right property—and connect you with trusted Mexican tax and accounting experts who understand cross-border real estate taxation.