Capital gains, income tax, and CRA.

Two tax authorities care about your Costa Rica property: Canada's CRA (because you're still a Canadian resident in their eyes), and Costa Rica's Hacienda (because the property sits there). Most Canadian buyers think the CR side is the complicated one. It's actually the simpler one. The Canadian-side reporting — rental income, capital gains, T1135 — is where most missteps happen. Here's what actually applies.

This page is companion to Question 01: The T1135 question. T1135 is the reporting form. This page is about the taxes themselves.

The Costa Rican side — surprisingly clean

Annual property tax — 0.25%

Costa Rica's impuesto sobre bienes inmuebles is calculated on the property's registered value at 0.25% per year, paid in four quarterly instalments to the Municipality. On a $400,000 USD property, that's roughly $1,000/year. By comparison, Toronto residential property tax sits around 0.65–0.7% of assessed value, Vancouver ~0.3%, Calgary ~0.7%. Costa Rica is on the low end of every Canadian municipality.

Luxury home tax — 0.25%–0.55% (only on high-value homes)

If your registered home value exceeds approximately USD $230,000 (the threshold updates annually for inflation; 2026 figure ≈ ¢150 million), the federal impuesto solidario para fortalecimiento de programas de vivienda ("luxury home tax") applies on a sliding-scale 0.25%–0.55% of the home portion (not the land). Filed annually with Hacienda by January 15.

Income tax on CR rental income — withholding model

If you rent your CR property, gross rental income is subject to Costa Rican income tax. Two regimes apply:

• Reduced rate (15% on gross) — automatic deduction; simpler filing. Most Canadian short-term-rental owners use this.
• Net regime (rate scales) — deduct expenses, pay tax on net. Better for full-time rental ops with significant maintenance/HOA costs.

Your CR property administrator (typical Pacific-coast rental managers) handles withholding and remits to Hacienda monthly. You receive a year-end summary in CRC.

Capital gains on sale — 15% if held <2 years; otherwise 0% or 2.25%

Costa Rica introduced capital-gains tax in 2019. Three rules:

• Held under 2 years and rented: 15% on gain
• Held over 2 years: 15% on gain — but a one-time 2.25% on sale price election is available (often lower than 15% on gain)
• Personal-use property — primary residence: exempt

For Canadian snowbird buyers (who are by definition not making CR their primary residence), the 15%-on-gain or 2.25%-on-sale-price options apply. Your CR notario calculates and withholds on closing.

The Canadian side — where most buyers get tripped up

Rental income reporting on your T1

Even though Costa Rica withholds tax on your rental, you must still report the gross income on your Canadian T1 (Form T776 or T2125 depending on your filing). The Canadian tax is calculated on the gross income at your marginal rate, then you claim a foreign tax credit for the CR tax already paid — so you're not double-taxed, but you ARE reporting both ways.

The single most common Canadian-buyer mistake: assuming "CR already taxed me, I'm done." Wrong. CRA wants the gross income reported. Then you claim the foreign tax credit for what CR took. Net result is roughly the same as if you'd only paid one or the other (whichever rate is higher), but the filing is dual-jurisdiction.

Capital gain on sale — full inclusion in Canadian return

When you eventually sell, the capital gain (in CAD, after FX conversion at the date of sale) is reportable on your Canadian T1 like any other capital gain — 50% inclusion rate as of 2026 [CRA Line 12700 guide]. You claim a foreign tax credit for any CR capital-gains tax already paid.

Principal-residence exemption — usually NOT available

The Canadian principal-residence exemption can shelter capital gain on a home that was your ordinary residence for any year(s) of ownership. For most Canadian buyers, the CR home is a vacation/second home — they remain Canadian residents and have a Canadian principal residence. CRA generally doesn't accept that the CR home is the principal residence unless you've actually moved there full-time and severed Canadian ties (a tax-residency change with significant other implications).

Depreciation (CCA) — a careful trap

Canadian rental-property owners can claim Capital Cost Allowance (depreciation) to reduce annual rental net income. If you claim CCA on your CR property, you may eliminate the principal-residence exemption permanently and trigger recapture on sale. Most cross-border CPAs advise against claiming CCA on the CR rental for this reason.

FX conversion is mandatory

All amounts on your Canadian return must be in CAD. CRA's preferred conversion methods:

• Cost base — converted at the spot rate on the day of acquisition (the wire date)
• Annual rental income — converted at the Bank of Canada annual average rate (or per-month if income is irregular)
• Sale proceeds — converted at the spot rate on the day of sale

Keep wire confirmations and rental statements with their month-of-receipt dates. Your CPA will use the right rate per line.

If you become a Costa Rican tax resident

If you spend 183+ days in CR in a given year, you may become a CR tax resident — subject to CR taxation on worldwide income. This is a major decision with wider implications (Canadian residency severance, CPP/OAS continuity, OHIP/MSP/AHCIP eligibility). Most Canadian retired buyers retain Canadian tax residency indefinitely by managing days, assets, and ties. The exception is full-relocation Canadians who genuinely move — they sever Canadian residency, file an exit return, and become CR tax residents.

Hacienda registration timeline

1. At closing: Notario reports the transaction to Hacienda; transfer tax paid
2. Within 30 days: Update Municipal property-tax records under your name
3. Within 60 days: Register for ATV (Hacienda online portal) using your DIMEX or passport
4. Annually by March 15: Property-tax declaration if value exceeds the threshold; luxury home tax by Jan 15
5. Monthly (if renting): 15% withholding on gross rental remitted by your administrator

Sources: CRA — Capital gains line guidance. This page is informational only — not tax advice. CR and Canadian tax law changes; confirm with a cross-border CPA before relying on any specific number.