Mortgage in Spain for Canadian buyers

The Spain-Canada Double Tax Convention (1976, amended by a 2014 protocol in force since December 2015) prevents double taxation between both countries.

If you remain Canadian tax resident (183 days a year or less in Spain and your main economic interests not here):

• IRNR (Spanish non-resident tax): 24% on an imputed income of 1.1% of the cadastral value (if it was revised in the previous 10 years) or 2% otherwise — the rate for residents outside the EU/EEA, even when not rented
• If rented: 24% on gross rental income (expenses are only deductible for EU/EEA residents, art. 24.6 of the Non-Residents Income Tax Act)
• Canadian salary, CPP, OAS: generally taxed in Canada; credit for any Spanish tax paid
• RRSP / RRIF / TFSA: taxed under Canadian rules while you live in Canada
• Capital gains on sale: 19% in Spain, and the buyer withholds 3% of the price on account; Canada gives a foreign tax credit

If you become Spanish tax resident (more than 183 days a year in Spain, or your main economic interests are here — art. 9 of the Personal Income Tax Act):

• Worldwide income subject to Spanish IRPF, at progressive rates set jointly by the State and each region
• Canadian pensions taxed as the treaty provides, with relief for double taxation
• TFSA, RRSP, RRIF: their Canadian tax treatment does not carry over automatically — ask an adviser how Spain would tax them
• Modelo 720 required if your assets abroad exceed €50,000 in any of its categories
• Canada treats you as having disposed of certain property when you emigrate (departure tax, CRA) — plan before you move

Action point: consult both a Canadian CPA familiar with departure tax and a Spanish tax adviser before making decisions about extended Spanish stays — registered plans (TFSA, RRSP) and the residency tests are where mistakes happen.

If you are Canadian tax resident and the total cost of your specified foreign property exceeds CAD 100,000 at any time during the year, you must file Form T1135 with your annual T1 return.

What counts as specified foreign property:

• Real property outside Canada that is not for personal use (e.g., a Spanish property you rent out)
• Foreign bank accounts (including your Spanish accounts)
• Shares in foreign corporations
• Foreign mutual funds and ETFs
• Interests in non-resident trusts

What does NOT count:

• Personal-use property, such as a vacation home you use primarily as a personal residence (CRA)
• Property used in an active business

Penalties: the CRA applies penalties for late or missing T1135 filings and for false statements or omissions; see its table of penalties.

Practical tip: a Spanish home you use yourself does not count towards the CAD 100,000, but your Spanish bank accounts do, and a property you rent out does. If you have to file, the simplified method (Part A) applies while the total cost of your specified foreign property stays under CAD 250,000 throughout the year.

Your Spanish mortgage is in EUR. Your Canadian income is in CAD. Banks may lend a lower percentage or discount income in another currency to cover the exchange-rate risk; no bank publishes a specific figure for Canadian dollars, so ask each one how it treats CAD income and get it in writing. Your monthly payment in CAD will move with the exchange rate for the life of the loan.

Strategies to mitigate:

• Open a EUR account in Spain and build up a cushion of several monthly payments before signing
• Compare the total cost of each CAD→EUR transfer (exchange-rate margin plus fees) between your bank and a currency-transfer specialist
• Show RRSP / RRIF / TFSA holdings as additional savings and ask the bank how it weighs them