Information on the United States-Canada Income Tax Treaty

The international treaty dissolves barriers.

The purpose of tax treaties is the elimination of double taxation, notes the "H&R Block Income Tax Guide." The income tax treaty between the U.S. and Canada typically only applies to federal income taxes.

History

The treaty, also known as the Canada-United States Income Tax Convention of 1980, has undergone revision recently. The "Fifth Protocol" of this treaty became effective in the U.S. in Dec. 2008. The final agreement came after 10 years of negotiations.

Consequences

The Fifth Protocol eliminates withholding tax on interest payments earned by a Canadian citizen from an American firm, and vice-versa for American citizens. Certain exceptions apply, such as with U.S.-based interest since it doesn't qualify as portfolio interest under U.S. law, according to the Association of Corporate Counsel. Further changes bring more benefits to U.S. owners of Limited Liability Companies (LLCs).

Complements

These new changes in the treaty build on past benefits, such as donations made to charities across the border being tax-deductible, and Canadians being exempt from paying taxes on income earned in the U.S. if totaling less that $10,000 for the tax year, according to the "H&R Block Income Tax Guide."

References

• "H&R Block 2002 Income Tax Guide"; H&R Block; 2002
• AllBusiness: United States-Canada Income Tax Treaty Update
• Association of Corporate Counsel: Fifth Protocol to the Canada-U.S. Tax Treaty