19 September 1984 Income Tax Severed Letter A-0464 - [Canada—U.S. Tax Convention]

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Mr. Butler, Director Non-Corporate Rulings Division Revenue Canada - Taxation 875 Heron Road Ottawa, Ontario K1A OL8

Re: Canada - U.S. Tax Convention

Dear Sir:

I would appreciate receiving your opinion on the following matter:

Entry Into Force

Under Article XXX, the Convention shall enter into force on October 1, 1984 for tax withheld at source on dividends, interest, royalties, pensions and annuities.

For all other taxes, the new Treaty will apply to taxable years beginning on or after January 1, 1985.

However, in Finance Release #84-128 dated August 16, 1984 it indicates that Canada agrees that the comprehensive technical explanation issued by the U.S. Treasury dated April 26, 1984 "accurately reflects understandings reached in the course of negotiations with respect to the interpretation and application of the various provisions in the 1980 Tax Convention as amended.". Therefore, where greater relief was provided under the old treaty, a transitional rule allows the more favorable treatment to continue through the first taxation year starting on or after January 1, 1985.

In other words, for taxes withheld at source on dividends, interest, royalties, pensions and annuities the higher withholding rates will only apply as of January 1, 1986. Is my understanding correct?

If my understanding is correct, then such income received by U.S. residents before January 1, 1986 will not be subject to the new rates.

With respect to pensions and annuities, does this transitional rule only apply to contracts issued by our Company before August 16, 1984 (ratification date ) ? Does it also apply to contracts issued after this date ?

If the issuance date of the contract is irrelevant is the date that the taxpayer becomes non-resident relevant ? In other words, will the transitional rule apply where a contract was issued in 1980 and the taxpayer becomes non-resident after the ratification date (August 16, 1984) ?

Or, is only the payment date relevant? In other words, regardless of when the contract was issued and/or regardless of the date the taxpayer became non-resident, all payments made to non-residents before January 1, 1986 will continue to fall under the old provisions (no withholding op. the lower rate) and payments made after 1985 will be subject to the new higher rates?

Pensions and Annuities

The term "pensions" and "annuities" is defined in Article XVIII. The definition of annuities excludes "any annuity the cost of which was deductible for the purposes of taxation in the Contracting State in which it was acquired".

What does this phrase mean or to what type of contracts is it referring to since IAAC's are specifically dealt with ?

Does periodic payments under an RRSP fall under the definition of "pensions" ? How about periodic payments under a DPSP ?

Will an annuity under subparagraph 60(l)(ii) of the Act fall under the definition of "pensions" ? Or is it caught by the exception under the definition of "annuities" ?

An early reply to the above questions would be appreciated since we are very involved in the pensions and annuities business.

Thank you for your attention to this above topic.

Yours truly,

XXXX