Airbnb tax withholding in Mexico - income tax double taxation

[JessicaandJeremy0]

Hi, Airbnb started withholding taxes from our Airbnb property in Mexico a couple years ago, even though we have paid our income taxes for the property in Canada for years. We should be allowed to file in Canada, according to the convention between our countries, yet they still deduct the withholding income taxes. They said we could deduct the amount from our Canadian income taxes, but they aren't providing the proper paperwork that the Canadian government accepts. I'm told we need a Notice of Assessment or Foreign Income Tax Return. They haven't provided either. Now I'm paying double taxation in Canada and Mexico. This is infuriating. Has anyone consulted tax lawyers about this? I've lost $13,000 and counting so far.

Here's the convention between the Government of Canada and the Government of the United Mexican States: (https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/mexico-conventi...)

Elimination of Double Taxation

1. In the case of Canada, double taxation shall be avoided as follows:
a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions - which shall not affect the general principle hereof - and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Mexico on profits, income or gains arising in Mexico shall be deducted from any Canadian tax payable in respect of such profits, income or gains.

... and a "non-discrimination clause":

The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.

There is definitely a greater deduction provided under the laws of Canada because we a) aren't charged twice and b) we can deduct our expenses off our income taxes here.

If anyone has any insight, that would be helpful, we'd appreciate it. We haven't been able to get an RFC so far. If anyone knows the best/easiest way to get an RFC, please let me know!

Jessica

[Mike-And-Jane0]

@JessicaandJeremy0 I think your interpretation of this dual tax treaty may be wrong. How it usually works is the tax is paid where the revenue is earned (in this case Mexico) and then the country of residence (Canada) accepts that this tax be deducted from what you owe there. It would be highly unusual to allow tax not to be paid in the country where the revenue is earned.

[JessicaandJeremy0]

Canadian tax laws are different. I've paid my international income tax in Canada from my PV place for years and my accountant always gave me a tax receipt to file in Mexico, saying I've paid my income taxes. Mexico, Canada and the U.S. have a convention under a North American alliance.

The problem is, now that Airbnb is collecting the tax, the company hasn't given me anything that the Canadian government accepts so I don't have to pay income taxes twice. Ever since Airbnb started withholding taxes, I've had to pay income tax in Mexico and income tax in Canada on the amount I make. It ends up being 60% taken off of our income. They have to figure this out or have some sort of customer service to correct this confusing process. 

I'm hoping there's a fellow Canadian who may have figured this out! It's super frustrating.

[Jason2140]

I don’t have an answer for you but I’m going through the same thing. Did you ever find the answer you were looking for?

thanks

[JessicaandJeremy0]

Hi @Jason2140 , so I think Airbnb withholds the taxes, but you have to get an RFC and actually pay your taxes with a Mexican accountant to then file a refund with Airbnb for the withholding amount they are “holding.” It’s clear as mud, but that is what I’m gathering from many unclear references to various websites. It has been handled so badly, I can’t even believe it. I hope that helps you, at least! I just hope they give me my thousands of dollars back once I go through all this.

[JessicaandJeremy0]

Oh and once you pay the taxes in Mexico, you can file a form in each country to prevent double taxation. It’ll be a long process 😞 I’d love to hear from someone Canadian who has actually made this work.

[Kia272]

@JessicaandJeremy0  Are you absolutely sure it's income tax they're deducting? Could it be lodging tax or some other tax that goes to the local jurisdiction or to the state/county/country? If that's the case, you'd owe it in addition to the income tax you're paying in Canada. 

I'm asking because I truly don't know. It's a guess on my part, but seems to me it could be part of this situation. I'm curious to know the answer. Kia

[JessicaandJeremy0]

Yes, it's crazy that a company is allowed to collect income tax from people around the world, but that is what they are doing! It doesn't seem legal to me, but the Mexican government is apparently forcing them to, which is against the agreement between our countries.

I would love if there's a Canadian who has gone through the same thing to let me know how to fix this. Airbnb is not helpful at all. I've been going through this for a few years and my government keeps saying the documents Airbnb are giving me are not legitimate every time I file my income taxes in Canada. It's super sketchy. I phoned and one person answering the phone said "Airbnb doesn't pay your taxes" - so then I'm left to wonder, where is all this money going? No one has answered that. They took away $13,000 in "income tax withholding" from my payouts last year alone!

It's a news story or a class action lawsuit, in my opinion. No one is helping at Airbnb.

[Kia272 · Accepted solution]

@JessicaandJeremy0  Everything I'm seeing on the Internet is saying that you have to pay these taxes even if you don't live in Mexico. It doesn't appear to be all "income" tax. Disregard the IRS/US reference- I'm well aware that you're Canadian:

"Do you pay taxes on rental income in Mexico?
The IRS can impose a $10,000 penalty for filing the form late or not at all. Mexico Also Taxes Your Rental Income: Mexico imposes income taxes, IVA and other taxes on all rental income derived by Landlords from renting properties in Mexico. You must pay these taxes even if you do not live in Mexico."

"Do you pay taxes on Airbnb income in Mexico?
Regardless of whether you're an American citizen or not, you must pay Mexico Airbnb taxes. As a rental property owner, you are required to pay Mexico Income Tax, called ISR (Impuesto Sobre la Renta) in Spanish, and Mexico Value Added Taxes, called Impuesto al Valor Agregado (IVA) in Spanish."

It appears to me that perhaps you don't understand the whole picture. While a portion of what they're withholding may be "income" tax, which you could possibly credit towards your Canadian income taxes, it seems like there are other taxes that you are required to pay. What you actually need to do is figure out what portion is allotted to which tax, and then you may have an argument. 

I strongly suggest that you hire a Mexican accountant/CPA, who may be able to sort this out for you. It's entirely worth the expense if you are owed all of this money, or a portion of it. It's also worth the expense to gain a full understanding of how this all works. Good luck. 

[JessicaandJeremy0]

Yes, thank you. I'm asking two different accountants recommended in Mexico for help.

That may be that there is a certain allotment I pay in Mexico and some in Canada. The convention does say there should be no double taxation so I do need something from Airbnb saying what I paid in Mexico already. At this point, I'm paying full income taxes to both and it's brutal! Basically I need tax documentation from Airbnb that is considered legitimate in Canada. They haven't been able to provide that so far. It's been declined both times I've tried to submit what they've given me. Now they're giving me Facturas and my accountant is telling me not to bother. I need a Notice of Assessment or Foreign Income Tax Return.

If they paid the income taxes to the government, I should be able to get one of those things. 

Thanks for looking that info up, though. I'm hoping one day, a Canadian who has figured this out will see this post and reply to me 😉 

[JessicaandJeremy0]

Oh and yes, there are other IVA taxes, but that is fine and actually very helpful that they pay those for us. It's the income taxes that are a complete mystery and there is no one who is able to explain what is going on.

[Monika716]

To piggyback on what Jessica wrote I am a US citizen with Air B&B rooms in Mexico. Can I receive a portion of the Mexican taxes back ?  Do I enter it into my 1040 as foreign tax? The taxes have really gone up. I am appreciative that they deduct the taxes automatically,  but it would help to recoup some of the tax.

Thank you, 

Monika