The Fifth Protocol To The Canada-Us Income Tax Convention

By Pamela L. Cross, Elinore J. Richardson and Bruce R. Sinclair, C.A.

On September 21, 2007 the Minister of Finance, Jim Flaherty, and the United States Secretary of the Treasury, Henry M. Paulson, signed the Fifth Protocol (the "Protocol") to the Canada-US Income Tax Convention (the "Treaty"). The amendments and additions to the Treaty contained in the Protocol are significant and will have a major impact on the way in which Canada-US cross-border planning is implemented once the Protocol is ratified and effective.

The Protocol completes the negotiation process that has been nearly a decade in the making. It has been released by both Canada and the US together with diplomatic notes ("Diplomatic Notes"). Both governments must now approve the Protocol and instruments of ratification must be exchanged. Many of the proposed amendments contained in the Protocol will be effective on the date which is the later of the ratification date and January 1, 2008, but other provisions, notably those for dividends and interest described below will have different effective dates.

Principal provisions of interest include:

The provision of treaty benefits to limited liability companies and other hybrid entities subject, however, to a denial of treaty benefits for amounts received from or thr...

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