I am a US person who bought a house in Mexico — what do I file?
Two things run in parallel. The United States taxes you on worldwide income and on gains, so the property has to appear on your US return whenever it produces rent or is sold, and the holding itself may have to be reported in a year when it produces nothing. Mexico taxes the property's income and gains as arising there, on its own timetable. The item particular to this corridor is the structure: Mexican property is often held through a trust arrangement, and until that arrangement has been characterised for US purposes you do not know which US reporting attaches to it. That characterisation is the first piece of work.
Does holding Mexican property through a trust create extra US reporting?
It can, and the answer is not the same for everybody, which is why it has to be worked out rather than assumed. An arrangement used to hold property may be treated for US purposes as a trust, or as a nominee arrangement in which you are regarded as owning the property directly. Those two conclusions carry very different reporting. The determination comes from the arrangement's own documents, who holds legal title, what the institution may and may not do, who takes the income and who bears the risk, not from what it is called locally. Get it characterised once, in writing, and the reporting follows.
I retired to Mexico — do I still have to file in the United States?
Yes, if you remain a US citizen or a lawful permanent resident. That obligation follows status, not address, so moving to Mexico changes where you live and not whether you file. Mexico will separately consider whether you have become resident there, which brings its own return. The practical questions are then ordering and evidence: which country taxes each item first, which return carries the credit, and how pension and social security payments are treated under the treaty. Retirement income is where this corridor most often goes wrong, because the source answer and the residence answer point in opposite directions.
My company manufactures in Mexico and sells in the US — what is at risk?
Two exposures, pulling in opposite directions. The first is intercompany pricing: whatever the Mexican operation charges the US company, or the other way round, has to be defensible to both revenue authorities, and each has an incentive to say the profit belongs on its side. The second is permanent establishment, meaning whether the activity in the other country amounts to a taxable presence there. Manufacturing arrangements raise both at once and in both directions, so the documentation has to be built to be read by two audiences rather than assembled for whichever authority asks first.
Does having staff in Mexico give my US company a taxable presence?
It may. A taxable presence turns on what the people actually do, not on their job titles or on whether you rent an office. Staff who only gather information or promote goods are treated differently from someone who plays the principal role leading to the conclusion of contracts, and it is the second of those that typically creates the presence. Warehousing, a workshop and a place of management each have their own treatment under the treaty. The reliable test is a written description of each role's real activities, reviewed against the treaty wording, before the Mexican authority asks for one.
Does the treaty mean I only have to file in one country?
No. A treaty allocates taxing rights and relieves double taxation. It does not merge two filing systems into one. You will generally file in both countries, claim the relief the treaty gives on the return where it belongs, and keep the evidence that supports it. The corridor also has a timing problem, because each country collects on its own schedule, so relief claimed correctly can still leave a cash balance due at home before a foreign refund arrives. That is the part worth planning for, and it is why instalments come up in the first meeting.
I have not filed for several years while living abroad — what are my options?
Both countries have routes back, and using one before they contact you is what preserves the relief. On the US side there are procedures aimed at taxpayers whose failure was not wilful, including one designed for people living outside the country, and separate procedures for late account reports and information returns alone. Canada has its voluntary disclosures programme and taxpayer relief for penalties and interest. Filing quietly and hoping is the one approach with no protection attached to it. See catch-up filing.
Do Canada and the United States share tax information?
Yes, through more than one channel. The treaty has an exchange-of-information article that supports both routine and on-request exchange. Separately, an intergovernmental agreement has Canadian financial institutions identify US-reportable accounts and report them to the CRA, which passes them to the IRS, with the reverse flow for Canadian residents. Most other country pairs use the Common Reporting Standard for the same purpose. See FATCA reporting.
