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📌 Scope & Definitions

 

Article I — Personal Scope

• Applies to residents of one or both of the US and Canada

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Article II — Taxes Covered

• Covers Canada's Income Tax Act and the US Internal Revenue Code, including future substantially similar taxes

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Article III — General Definitions

• Defines key terms: Canada, United States, person, company, competent authority, and international traffic

• Undefined terms carry their respective domestic-law meaning

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📌 Residence & Permanent Establishment

 

Article IV — Residence

• A person is a resident if liable to tax by domicile, residence, incorporation, or place of management

• Dual-residency tie-breakers applied in this order: (1) permanent home, (2) centre of vital interests, (3) habitual abode, (4) citizenship, (5) mutual agreement

 

Article V — Permanent Establishment (PE)

• PE = fixed place of business: branch, office, factory, or mine

• Building/construction site = PE if it exceeds 12 months

• Drilling rig or ship = PE if present for more than 3 months in any 12-month period

• Dependent agent with authority to conclude contracts = PE

• Preparatory or auxiliary activities do not create a PE

 

📌 Business & Property Income

 

Article VI — Real Property Income

• Income from real property situated in the other State may be taxed in the situs State

• Covers agriculture, forestry, natural resources, direct use, letting, and alienation

 

Article VII — Business Profits

• Taxable only in the residence State unless a PE exists in the other State

• PE profits taxed on arm's-length, separate-entity basis

• Executive and administrative expenses are deductible against PE profits

 

Article VIII — Transportation

• Ships and aircraft in international traffic: exempt in the other State

• Motor vehicles and rail containers: exempt if used in the other State for ≤183 days in a 12-month period

 

Article IX — Related Persons / Transfer Pricing

• Each State may adjust income where related-party transactions are not at arm's length

• Corresponding adjustment required upon notification within 6 years of the relevant tax year-end

 

📌 Capital Gains

 

Article XIII — Capital Gains

• Real property gains → taxable in the situs State

• PE business property gains → taxable in the PE State

• Shares of companies whose value is principally derived from real property → taxable in the situs State

• All other capital gains → taxable only in the residence State

• Substantial interest = ≥10% of any share class

• Exit-tax look-back: applies to former residents who were resident for 120 months within any 20-year period and resident within the prior 10 years

 

📌 Passive Income — Withholding Rates

 

Article X — Dividends

• Direct investment (≥10% voting interest): 5%

• Portfolio holdings: 15%

• Branch profits tax: 5%

• RIC (Regulated Investment Company): 15%

• REIT: domestic statutory rate (no treaty cap)

 

Article XI — Interest

• General rate: 10%

• Government/instrumentality interest: 0% (exempt)

• Government-guaranteed arm's-length debt: 0% (exempt)

• Trade credits: 0% (exempt)

• REMIC excess inclusions: full US statutory rate

 

Article XII — Royalties

• General rate: 10%

• Literary, artistic, dramatic, musical copyrights: 0% (exempt)

• Computer software: 0% (exempt)

• Patents and industrial know-how: 0% (exempt)

• Film and television works: 10%

• Natural resource royalties: domestic statutory rate (no treaty cap)

 

📌 Personal Services

 

Article XIV — Independent Personal Services

• Taxable in the residence State

• Also taxable in the source State if income is attributable to a fixed base regularly maintained there

 

Article XV — Dependent Personal Services (Employment Income)

• Taxable only in the residence State unless work is performed in the other State

• Exemption applies if:

  • Remuneration does not exceed USD/CAD 10,000, OR

  • Individual present for ≤183 days AND employer is not resident in the work State

 

Article XVI — Artistes & Athletes

• Taxable in the State of performance regardless of personal services rules

• Exemption: gross receipts ≤ USD/CAD 15,000 per year

• Sign-on bonuses: capped at 15% in employer's State

• Team athletes in cross-border leagues: exempt

 

Article XVII — Withholding on Personal Services

• Work State may withhold on personal services income

• First USD/CAD 5,000 per payer: withholding capped at 10%

 

📌 Pensions, Annuities & Social Security

 

Article XVIII — Pensions & Annuities

• Primarily taxable in the residence State

• Source-State withholding cap: 15% on periodic pensions and taxable portion of annuities

• Social security benefits: taxable only in the residence State (Protocol 4, 1997)

• RRSP: US taxation deferred until distribution for US citizens resident in Canada

 

Article XIX — Government Service

• Remuneration paid by a State to its own citizens for governmental functions: taxable only in the paying State

 

Article XX — Students

• Maintenance and education payments received from abroad are not taxable in the State of study

 

📌 Other Income & Capital

 

Article XXI — Exempt Organizations

• Religious, scientific, literary, educational, and charitable entities: exempt from source-State tax on qualifying income

• Pension fund dividend and interest income: exempt

• Charitable contribution deductions available cross-border (subject to income limits)

 

Article XXII — Other Income

• Income not covered elsewhere: taxable only in the residence State

• Trust and estate distributions: capped at 15% at source

• Gambling losses deductible to the same extent as a resident

 

Article XXIII — Capital

• Real property and PE capital: taxable in the situs or PE State

• Ships, aircraft, and all other capital: taxable only in the residence State

 

📌 Relief from Double Taxation & Procedure

 

Article XXIV — Elimination of Double Taxation

• United States: provides a foreign tax credit for Canadian taxes paid

• Canada: provides a deduction or credit for US taxes; exempt-surplus dividend deduction available

• US citizens resident in Canada: Canada holds primary taxing rights on dividends, interest, and royalties above 15%; US retains residual right

• Social security taxes paid to the US are creditable in Canada

 

Article XXV — Non-Discrimination

• Nationals of one State residing in the other cannot face more burdensome taxation than nationals of that State

• Applies to all national taxes under Protocol 3 (1995)

 

Article XXVI — Mutual Agreement Procedure (MAP)

• Residents may present cases to the competent authority

• MAP notification deadline: within 6 years of the relevant tax year-end

• Protocol 3 introduced binding arbitration

 

Article XXVI-A — Assistance in Collection

• Each State may collect finally determined tax debts on behalf of the other

• Retroactive reach: 10 years prior to Protocol 3's entry into force

• No assistance if the individual was a citizen of the requested State in the relevant period

 

Article XXVII — Exchange of Information

• Competent authorities exchange information relevant to administering the Convention and domestic tax laws

• Confidentiality obligations apply; broadened to all national taxes under Protocol 3

 

📌 Special Provisions

 

Article XXIX — Miscellaneous Rules

• Saving clause: each State may tax its own residents and citizens as if no treaty were in force, with defined exceptions for pensions, government service, exempt organizations, double-tax relief, non-discrimination, and MAP

• RRSP deferral elections available for US citizens in Canada

• S-corporation look-through treatment applies for Canadian residents

• Former citizens treated as citizens for 10 years (tax-motivated expatriation)

 

Article XXIX-A — Limitation on Benefits (LOB) — US Side Only

• Treaty benefits restricted to "qualifying persons": individuals, governments, publicly traded entities, widely held companies, estates, non-profits, and pension funds

• Active business exception available

• Derivative benefits test: ownership of >90% by equivalent beneficiaries AND <50% of expenses flowing to non-qualifying persons

• Competent authority discretion available for non-qualifying persons

 

Article XXIX-B — Taxes at Death

• Coordinates US estate tax with Canadian deemed-disposition income tax

• US pro-rata unified credit available for Canadian-resident estates

• US marital credit available for qualifying property

• Small-estate exemption: worldwide estate ≤ USD 1.2 million (US taxes only FIRPTA assets)

• Cross-credits: Canadian income tax at death creditable against US estate tax and vice versa

 

📌 Entry into Force & Termination

 

Article XXX — Entry into Force

• Signed: 26 September 1980 · In force: 16 August 1984

• Withholding provisions: effective first day of the second month after entry into force

• Other taxes: apply from 1 January of the year following entry into force

• The 1942 Convention was superseded upon entry into force

 

Article XXXI — Termination

• Convention remains in force indefinitely

• Either State may terminate after 5 years with 6 months' diplomatic notice

• Early termination permitted if a significant domestic tax law change cannot be accommodated

 

This summary is for general reference only. Always consult the full Convention text and applicable Protocols for authoritative guidance. Rates shown are maximum treaty rates; lower domestic rates take precedence where applicable. Protocol 3 (1995) and Protocol 4 (1997) introduced the most significant amendments to withholding rates and social security treatment.