Protocol Amending The Canada-US Tax Treaty Enters Into Force

Last month the Canadian Minister of Finance and the US Treasury Secretary announced the entry into force of the Fifth Protocol to the Canada-United States Income Tax Convention, 1980 (the "Treaty"), which updates and amends the Treaty. Although the Fifth Protocol is generally effective for taxable years that begin after 2008, as noted below, several provisions have special application rules.

ELIMINATION OF WITHHOLDING TAX ON INTEREST PAYMENTS

The Fifth Protocol introduced the much-anticipated rule to reduce – and eventually eliminate – sourcecountry withholding tax on cross-border payments of interest. Subject to certain exemptions, interest arising in one country and beneficially owned by a resident of the other country will be taxable only in the other country. Certain types of interest will not benefit from the exemption, such as "participating" interest arising in Canada, and interest arising in the US that is contingent interest of a type that does not