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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 including payments made under
social scrutiny legislation. Periodic pension payments are taxable only in the resident
country.
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 payments under pension or income averaging
annuity contracts. Annuities are subject to tax in the payer country at a rate of 10%. See
also note (6)
(11) The protocol to the Canada-U.S. treaty entered into force on December 15, 2008.
It introduced a number of provisions that do not exist in Canada’s other treaties.
• 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).
Dividends—The 5% withholding tax rate applies if the recipient of the dividends is a
company that is the beneficial owner of at least 10% of the voting stock of the payer. The
rate of Canadian branch tax is also limited to 5% on cumulative branch profits exceeding
Current as of September 30, 2014