New tax on AirBnB rentals, etc?

The Guad Reporter recently spoke a of a 'new' 3% tax on Lakeside home rentals, to level the playing field for local hotels, etc.

We had been told prior to this by an 'informed' person that if the transaction was in a non-peso currency and tax was demonstrably paid in your home country, that all was good.

My questions are 3 then: Is the above legit?, When does the new 3% tax take effect, and How does one account and pay it?

For clarity, we rent our place privately in the summer to offset costs and have it occupied, and always pay tax on the revenue in our home country.

This is not new at all. You have to pay the 3% state hospitality tax on all your rentals along with any federal tax due on your income. I Have an accountant that does my books. Your income must be reported to the state and federal government every month and any taxes that are due must be paid every second month. Mexican taxes are due on any monies earned in Mexico.

AirBnB has recently decided to submit the 3% hospitality state tax on your behalf since most people are not submitting it on their own and they (AirBnB) feared getting the boot from Mexico.

Also you need to get an RFC # and register on-line with both the state and federal tax departments so you or your accountant can do your monthly submittals.

A Residente Permanente visa, or Temporal with Lucrativa endorsement, are probably also needed, in addition to the RFC, etc.  It is getting more and more complicated and computerization will probably increase enforcement.

Yes, you need one or the other.

CanuckBob wrote:Also you need to get an RFC # and register on-line with both the state and federal tax departments so you or your accountant can do your monthly submittals.

If Airbnb is paying the 3% tax on your behalf, why would you be doing monthly submittals?

Well first of all I wouldn't trust AirBnB to do anything for me.

Secondly, we get rentals from AirBnB, VRBO, TripAdvisor, Homeaway and our own website. AirBnB can give them whatever they want I suppose. I have no idea how the Mexican government will track it. 

And thirdly that is just a portion of the taxes due. The other part is the federal tax.

I suppose the Mexican government will be looking for federal submittals for those who were reported by AirBnB so..........people better start getting legit.

Does it amount to a lot? What percentage are you spending on taxes, Bob? Or anyone doing what you do.

You pay 3% state hospitality tax on gross earnings and up to 30% federal tax on net earnings. The federal tax is a stepped system that allows the first 2 years with no tax payable (although you still must report every month) and then you pay 3% in year 3, 6% in year 4, 9% in year 5 and so on until you are at the top. It takes about 12 years before you have to pay the max in federal taxes.

And then you have to be very careful how you set things up or you will risk having your property deemed commercial and thus exempt from the capital gains allowances when you try to sell.

Interesting, thanks. Seems like a fair system to me.

I have no problem with it and I do hope the government cracks down on those not following the rules to level the playing field as suggested by the GDL reporter.

I totally agree CBob. You earn money on rentals anywhere else and you pay taxes. You earn money in Mexico, you pay taxes on it in Mexico. PERIOD.
I am getting very pissed off with those who think they are foreigners and therefore somehow exempt from following rules... even the rules of the road.

gringal wrote:

CanuckBob wrote:Also you need to get an RFC # and register on-line with both the state and federal tax departments so you or your accountant can do your monthly submittals.

If Airbnb is paying the 3% tax on your behalf, why would you be doing monthly submittals?

The 3%.....that is only the hospitality tax. You are still liable for ISR (income tax), IVA (sales tax), and if you have any employees, IMSS and Infonavit, all payable to the SAT (federal agency).  If you get into any kerfuffle with Hacienda over nonpayment of taxes, they will check every one of those "faucets".  I'm sure there are "bounty hunter" bonuses for adept tax auditors.

hbdoss1 wrote:The Guad Reporter recently spoke a of a 'new' 3% tax on Lakeside home rentals, to level the playing field for local hotels, etc.

We had been told prior to this by an 'informed' person that if the transaction was in a non-peso currency and tax was demonstrably paid in your home country, that all was good.

My questions are 3 then: Is the above legit?, When does the new 3% tax take effect, and How does one account and pay it?  

For clarity, we rent our place privately in the summer to offset costs and have it occupied, and always pay tax on the revenue in our home country.

You don't say what is your "home country" but the following extract belongs to the Canada/Mexico Tax Treaty and may be of interest to you

Article 6
Income from Immovable Property

1. Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.

2. For the purposes of this Convention, the term "immovable property" shall have the meaning which it has for the purposes of the taxation law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property.

3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property and to income from the alienation of such property.

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise.

If you are Canadian then you must declare your ownership of foreign property on your Tax Return and complete and file Form T1135. You must also complete and file "Schedule A, Statement of World Income" showing the net income from your rental property.

2 or 3 years ago a Canadian who rented out his property down here had a falling out with his Canadian tenant who promptly reported him to CRA who hit him with everything in the book resulting in many penalties and fine. It pays to be honest with the CRA

The US also has a Treaty with Mexico, it is somewhat similar but not quite.

Tax questions mostly cannot be answered with a simple yes or no. You have to read the fine print.

Dave, you only need to report your ownership of foreign property that is above a certain value. There is also a difference between a Canadian resident and non-resident since most non-residents don't even file taxes, no?

CanuckBob wrote:Dave, you only need to report your ownership of foreign property that is above a certain value. There is also a difference between a Canadian resident and non-resident since most non-residents don't even file taxes, no?

Tax treaties deal with income arising in one country and being paid to a resident of the another country. If you are a non-resident of Canada and a permanent resident of Mexico then other factors come into play.

The OP is a resident of Canada (possible. we don't know) with income arising in Mexico. Taxes must be paid to Mexico first and then it must be declared to Canada in the way I described.

Just as a note. Foreign property over 100,000CDN owned by a resident of Canada must be reported as I described. That would probably be true of all property here lakeside. I don't bother to differentiate.

If you are a non-resident of Canada and you own property of any value outside of Canada, it does not have to reported to Canada. It is either your principal residence or if it is rental property you pay your taxes to Mexico

Thanks for the clarification Dave.

Folks, Your info is well above expectation, and very much appreciated. Some clarification and a few additional questions for consideration: We just bought and had renters last year, with more offsetting expenses on the old place than revenues (eg roof, salitre, etc.). I notified CRA and did up the qualifying expenses using Cdn tax laws though, which suggests that we need a Mexican accountant, and that we are offside with the 3%. I searched this site for accountant recommendations without success. Any thoughts?
Also, we have not pursued Permanante or even Temporale so are we offside there too maybe, by the posts above? CBob might also comment on how to ensure a non-commercial setup (ie %age of personal occupancy)? It's not our intent to 'duck' tax and it was an experienced and reputable rental agency that said tax was only due to the home country and if the revenues were in non-Mexican $. In retrospect, that doesn't ring true now, and I want to get back onside.

As I understand it, you cannot do anything lucrative in Mexico on a tourist permit. You would have to have, at least, a Residente Temporal with a Lucrativa endorsement from INM. Then, you would need the accountant to take care of your tax filings, once you got your RFC, and your SAT obligations. It would be similar with a Residente Permanente visa, which permits working, but does not require permission from INM; just notification. Now, if you do not receive any funds in Mexico, or deal with folks in Mexico, that all gets very fuzzy. Do you mean that you simply have friends as houseguests, who may happen to make certain arrangements in Canada?

Be careful RV. Fuzzy math and nosy, vindictive neighbours or renters can lead to a world of hurt.

Very true!

RVG, The arrangements are with out of country friends and are not done in Mexico with no $ changing hands locally. That provides us comfort while we aren't here, and gives enjoyment to friends and family. Perhaps a better arrangement would be to provide the place free and get them to pay expenses, since they insist upon some consideration?

Also, we had concluded that a visitor visa best described our snowbird status, and avoided issues with the beater car that we drive down. I am told that I would need to buy a new vehicle if I moved away from that. Permanante is when we need to sell, was the thinking. Still need a local accountant to sort out the past 3% though.

It may sometimes be wise to avoid asking too many questions.

Unless you get a temp or perm residency visa with permission to earn you can't pay taxes. If you want to be legal that is your only choice. Its the same rules for tourists visiting Canada......they can't earn money there.

Thanks for all of the answers. While the road ahead seems complicated, it is now clear, and you folks have helped a great deal! Cheers.