mexican estate tax

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Hello David.
Further to our telephone conversation, I'm wondering if you could
please provide me with some information for a story I'm working on for
the CBC. We're wondering what people should consider when buying
a home (retirement or vacation property, but not a time-share) in a
southern climate.
I read that Mexico does not have an estate tax. Is that true? 
If so, then if someone buys property in Mexico and then that person
dies, what happens to the property? 
I appreciate your time in responding to my query. Please call me if you
need me to elaborate on my request for information.
Regards,
PXXXXXX
CBC TORONTO 
416-205-xxxx
========================
david ingram replies:
I do NOT consider myself the ultimate source for Mexican tax information.  However, if you goto Google and type in 
Canada Mexico income tax expert
I come in as one, two three and four.  AND if you use 
Canada Mexico US income tax  expert
I still come in one, two three and four
The truth is that the taxation of Canadians in Mexico is very hit and miss.  Most Canadians are NOT paying the tax they should be paying.  But then, few Canadians are paying the tax they should be paying to the United States either.  The following should help you with your story. If you need anything further, feel free to call me at (604) 657-8451.  I do not have a message system.  If it just rings or I do not answer, it is because I am busy and I leave it up to you to call back.  I have had to take this stand because I get some twenty phone calls and another twenty email questions a day.  It is impossible to get back to people.   On the other hand, if you phone the office at (604) 913-9133, Gail Ritter, Sonja Clark or George Hatton can just about always look after a serious matter for me. 
The Following should answer your enquiry:
Mexico does not have an Estate Tax.  It does have a capital gains tax which affects the sale of the property.  Unlike Canada and the United States, Mexico has an inflation index which acts to increase the ACB (adjusted cost base) of the property so that you only pay tax on the profit adjusted for inflation.  
Let us assume that you bought a condo two years ago at $100,000 and then sold it at the end of the second year. Inflation during that period was 11% and 10% respectively. The price would be adjusted to $111,000 the first year and to $121,100 for the second year.  If sold for $221,100 the capital gain for Mexican purposes would be $100,000 and the profit for Canadian purposes would be $121,100.
In addition, if the appraised value of the condo was only $200,000, you have the option in Mexico of using that as the sales price so for Mexican tax you would be reporting $78,900 and for Canada you would still be using $121,100.  Do not ask me why the Mexican Revenue People allow the lower figure.  It is a peculiar Gallic custom unique to Mexico.
And, just to confuse the issue, if your son or daughter or other direct family member happened to have lived in the Mexican condo full time for the last two years, there is a further exemption and the property is exempt from Mexican income tax but still subject to Canadian Income tax. There is no limit on the amount of gain that can be tax free in Mexico and this would apply if you used the property part time for twenty years but full time for the last two years of ownership.  And, Of course, if you did not own a house in Canada, there is nothing stopping you from claiming the Mexican house tax free as your principal residence for Canadian Tax purposes.
The tax rate starts at 3% and rises rapidly to 35% which results in a higher capital gains tax than Canada's Rate.
In general, if a Canadian sold a property and made $100,000 and paid $25,000 tax to Mexico, there would be no Canadian Tax because most provinces have an effective highest rate of tax on a Capital Gain of about 22% so the Tax paid to Mexico would wipe out the tax owing to Canada. 
I will explain the 22% Canadian Capital Gains tax in this manner.  We tax one half of the Capital Gain at the taxpayer's highest marginal tax rate which is 43 to 46% depending upon which province you are in.  Therefore, the example of $100,000 capital gain which Mexico taxed at 25% for $25,000 of tax, Canada would tax $50,000 at 44%  for a net of 22% of $100,000.  Canada would allow a foreign tax credit for the $25,000 paid to Mexico and there would be no or very little tax paid to Canada.
Last but not least, when the Canadian dies and owns property in Mexico, the property would transfer to his or her heirs with no estate tax in Mexico.  Canada would deem the property to have been sold at death and the estate would have to pay any capital gains tax owing on any accumulated capital gain "unless" the property was left to a spouse, in which case the capital gain woudl be deferred until disposition by the surviving spouse.
Hope this helps you PXXXX!
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
108-100 Park Royal South
West Vancouver,  BC, CANADA, V7T 1A2
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321 
[email protected]
www.centa.com www.david-ingram.com
This from "ask an income tax and immigration and bankruptcy expert" from www.centa.com or www.jurock.com or www.featureweb.com. Canadian David Ingram deals daily with tax returns dealing with expatriate:
multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, the United Kingdom, Kuwait, Dubai, Saudi Arabia, South Africa,  Thailand, Indonesia, Egypt, Antarctica,  Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, American and Canadian and Mexican and any of the 43 states with state tax returns, etc.
income tax wizard wizzard guru advisor specialist consultant taxman  Alaska,  Alabama,  Arkansas,  Arizona, 
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