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Non-Resident Withholding Tax Rates for Treaty Countries

Notes, continued

 

Pensions/Annuities—Pensions are defined to include any payment under a superannuation, 

pension or retirement plan, and certain other amounts, but exclude any payments in 

settlement of all future entitlements or payments under an income-averaging annuity 

contract (IAAC). Pensions are taxable only in the resident country. Under the terms of the 

protocol, pension payments must be periodic to qualify for the tax exemption.

 Annuities are defined as periodic payments payable during a person’s lifetime or for a 

specified period of time, under an obligation to make the payments in return for money or 

money’s worth. The definition excludes pensions, any payments in settlement of all future 

entitlements and IAACs. Annuities are subject to tax in the payer country at a rate of 10%. 

See also note (6).

(12)  The protocol to the Canada-U.S. treaty entered into force on December 15, 2008. The most 

significant changes contained in the protocol are as follows: 

• The withholding tax rate on interest paid to non-arm’s length parties decreased to 7%

on January 1, 2008, 4% on January 1, 2009 and 0% on January 1, 2010

• Treaty benefits apply to certain “fiscally transparent entities” (FTEs) such as limited

liability companies, where the owner is resident in one of the countries, the income of 

the FTE is subject to tax in the owners’ hands and the FTE is not resident in the other 

country

• Treaty benefits are denied to certain FTEs that are treated as flow-through entities

under the laws of one of the countries, and as regular taxable entities under the laws 

of the other country

• The permanent establishment provisions cover certain Canadian or U.S. service

providers who are present in the other country for more than 183 days in any 12-month 

period

• The 5% treaty withholding tax rate on dividends applies to corporate members of

FTEs that hold at least 10% of the voting shares in the company paying the dividends

• The treaty includes a limitation-on-benefits (LOB) clause that generally allows treaty

benefits to be claimed only by certain “qualifying” persons, or entities carrying on 

connected active business activities in both countries.

The following items apply under the provisions of the Canada-U.S. treaty:

 Interest—Interest is defined as income from debt claims of every kind, whether or not 

secured by mortgage, and whether or not carrying a right to participate in the debtor’s 

profits, including premiums and prizes attaching to bonds and debentures, as well as 

income assimilated to income from money lent by the tax law of Canada or the U.S., as 

the case may be. Contingent interest arising in the U.S. that does not qualify as portfolio 

interest will be subject to a withholding rate of 15%. As well, interest arising in Canada 

that is determined by reference to receipts, sales, income, profits or other cash flow of the 

debtor will also be subject to a 15% withholding rate. See also note (3).

Current as of May 3, 2013

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