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The ability to borrow and lend securities without significant tax consequences is essential to various capital markets activities including repo financings and hedging the obligations created by certain derivative products. U.S.-based securities lenders have traditionally faced difficulties in lending to Canadian-based securities borrowers because of potential withholding tax on payments made as compensation for dividend or interest payments on the borrowed securities.

A non-resident is liable to tax in Canada on income from a variety of domestic sources. Included among these is income from a business carried on in Canada and taxable capital gains from the disposition of "taxable Canadian properties" other than "treaty-protected properties".