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Tax Memo: Canada-US Income Tax Treaty: Fifth Protocol Makes Major Changes
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On Friday, September 21, 2007, after nearly 10 years of negotiation, the United States and Canada jointly released the fifth Protocol¹ (the Protocol) to the Canada-US Income Tax Convention (Treaty).
The Protocol will have a significant effect on individuals, as well as on Canadian multinationals with US operations and US multinationals with operations in Canada. It includes some surprises. However, as previously announced in Canada's 2007 federal budget and in a September 2000 Department of Finance press release, the Protocol:
- eliminates withholding taxes on interest;
- extends treaty benefits to owners of Limited Liability Companies (LLCs);
- modifies the rules dealing with residence and corporate emigration; and
- changes the way in which various personal tax considerations are handled.
¹ The Protocol includes Annexes A and B.
