Article 29

See Also

Black v. The Queen, 2014 DTC 1046 [at 2882], 2014 TCC 12, briefly aff'd 2014 FCA 275

Treaty residence not domestically applicable

In 2002, the taxpayer was resident both in Canada and the U.K. for domestic tax purposes, but by virtue of Art. 4, para. 2(a) of the Canada-U.K Income Tax Convention (the "Convention") he was a resident of the U.K. for purposes of the Convention.

The taxpayer unsuccessfully argued that his treaty non-residence caused him to not be resident under the Act, so that he was not subject to tax under the Act on non-Canadian source income such as $2.9 million of income from U.S. employment, imputed benefits of $1.4 million from free use of a corporate jet, and interest and dividend income.

If he instead had been successful on this argument, he would have faced a further difficulty in Art. 27, para. 2 of the Convention, which provided that income, which otherwise was "relieved" from Canadian income tax under the Convention but was subject to tax in the U.K. only on a remittance basis, would only be subject to such relief to the extent it was so remitted. Rip CJ found that this provision was not restricted to income which arose in Canada, so that it would have permitted Canada to tax Black's U.S.-source employment income (which had not been remitted to the U.K.), stating (at para. 67):

I agree with respondent that reading the words such as "arising in Canada" into Article 27(2) would distort the intended meaning of that provision of the Convention. I cannot fathom that Canadian and British negotiators would agree to hand over any taxing authority to a third country, in the case of the applicant, income from employment in the United States, to the Americans.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 45(2) amendments usually change the Act 185
Tax Topics - Statutory Interpretation - Other/Conflicting Statutes presumption against inconsistency 99
Tax Topics - Treaties - Income Tax Conventions - Article 4 Treaty residence not domestically applicable 244

Administrative Policy

5 October 2021 Internal T.I. 2021-0903361I7 - Remittance Basis Taxation - Canada-Barbados Treaty.

CRA requires proof that a Barbados remittance-based resident has borne tax on Canadian dividend income before providing the Treaty rate reduction

Where dividends paid by a resident corporation resident to a resident personal discretionary trust are deemed pursuant to s. 104(19) to be received by a beneficiary that is resident, but not domiciled in Barbados (“NR-Beneficiary”), would those dividends be subject to a reduced rate of withholding at 15% pursuant to Arts. XXIII(3) and XXX(5) of the Canada-Barbados Treaty?

After noting that NR-Beneficiary was subject to taxation under the Barbados Income Tax Act, 1968 on its “income from sources outside Barbados … only to the extent a benefit is obtained in Barbados from that income in the form, among others, of a remittance of money or an importation of property,” i.e., on a “remittance basis,” the Directorate further noted that although the dividend withholding rate otherwise was reduced to 15% pursuant to Art. XXIII(3) of the Treaty, “Article XXX(5) generally restricts the application of the provisions of the Treaty to income that is taxed in the hands of a person subject to tax on a remittance basis in Barbados.” The Directorate then stated:

If a person who is subject to remittance basis taxation in Barbados files a return of income in Barbados contrary to the application of the law in force in Barbados, it is our view that the income reported on that return … would not be considered “taxed” in Barbados for the purposes of Article XXX(5) such that the benefits of the Treaty would not apply to the Income.

Accordingly, to receive the Treaty-rate reduction on the dividend income, NR-Beneficiary would be required to establish that such income “is taxed in Barbados in conformity with the law in force in that country.”

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 4 Barbados remittance-based taxpayer is a Treaty resident under Crown Forest test 211

31 January 2006 External T.I. 2005-0151041E5 F - Régimes de sécurité sociale étrangers

plan recognized as a pension plan under Art. 29(5) of the Cda-France Convention cannot be an EBP

In response to a query as to whether contributions made by an employer to certain French social security plans are considered taxable benefits to employees who are residents of Canada for a period not exceeding 5 years and an expressed view that such plans are employee benefit plans ("EBP") so that no amount is to be included in the employee's income as a benefit under s. 6(1)(a)(ii), CRA stated:

[W]here a pension plan is recognized for the purposes of paragraph 5 of Article 29 of the [Canada-France] Convention, it is our view that it is not an EBP. Further, in general, there would be no taxable benefit in such a case pursuant to paragraph 6(1)(a).

The CRA summary further noted:

The Tax Convention takes precedence over the application of the Act.

18 July 2018 Internal T.I. 2018-0766441I7 - Article XXIX(5) and 91(5)

agreement with CASD terminated when S Corp. ceased to be fiscally transparent

A Canadian resident (and US citizen) had an agreement with the Canadian Competent Authority under Art. XXIX(5) of the Canada-US Treaty, by virtue of which he included his share of the S Corporation’s income as FAPI, claimed a s. 126 credit for the US taxes on that income, and added such FAPI to the ACB of his shares. However, before he received any dividend, he revoked the S Corp’s status as a fiscally transparent entity for US purposes, so that the Agreement thereupon terminated.

The S Corp then paid a dividend to him of income that previously had been included in his income as FAPI (and now was included in his income under s. 90(1).)

The Directorate indicated that where the S Corp was a CFA of the individual, he could take a s. 91(5) deduction of the dividend paid after the Agreement invalidation, with a corresponding reduction to the ACB of his shares.

However, where the S Corp was not a FA at the time of the dividend, no s. 91(5) deduction would be available (but with no corresponding ACB reduction) because in such absence of FA status, Reg. 5900(3) would not deem the dividend to come out of taxable surplus.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 91 - Subsection 91(5) revocation of a Treaty S Corp. agreement with CASD resulted in double taxation of the S Corp income when now dividended to Canada 363
Tax Topics - Income Tax Act - Section 248 - Subsection 248(28) S Corp income included as FAPI by virtue of Treaty S Corp. agreement was a separate amount for s. 248(28) purposes from the subsequent dividending of that income 335

1 June 2018 External T.I. 2017-0723051E5 - Meaning of "Relieved from Tax"

Canadian royalties received exempt of U.K. tax by non-dom U.K. resident not eligible for Treaty-reduced rate

A Canadian author (X) who became resident but not domiciled in the UK thereafter received royalties from a Canadian publisher, that were not subject to U.K. tax because they not remitted to the UK. Are the Royalties subject to 25% withholding under s. 212(1)(d) having regard to Art. 27(2) of the Canada-U.K. Treaty? Art. 27(2) provides:

Where under any provision of this Convention any income is relieved from tax in a Contracting State and, under the law in force in the other Contracting State a person, in respect of that income, is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the relief to be allowed under this Convention in the first-mentioned Contracting State shall apply only to so much of the income as is taxed in the other Contracting State.

In finding that the Royalties were subject to the non-Treaty reduced rate of 25%, CRA stated:

[I]ncome that is “relieved from tax” in Article 27(2) of the Treaty refers to income that is either partly or wholly relieved from Canadian income tax, pursuant to a provision in the Treaty. Given that Article 12(2) of the Treaty grants X a reduced 10% rate of withholding tax, such income would be considered to be “relieved from tax” in Canada under that Article for the purposes of Article 27(2). … Since … the Royalty payments will not be remitted to or received in the UK and accordingly are not taxable in the UK, X will not be entitled to the benefits of Article 12(2) … .

Words and Phrases
relieved from tax
Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 12 rate reduction inapplicable where received by remittance-based UK resident free of UK tax 132

16 May 2018 IFA Roundtable Q. 1, 2018-0748181C6 - New U.S. GILTI Tax

Treaty does not fetter the right of the US to impose GILTI tax with reference to Canadian subs’ income

The new rules on tax on “global low-taxed intangible income” or “GILTI” in s. 951A of the Code may result in a U.S. corporation being subject to tax on a current basis on active business income earned by a controlled Canadian subsidiary, even if that subsidiary does not have a permanent establishment in the U.S. Under Article VII of the Canada-U.S. Tax Convention (“Convention”), business profits of a corporation resident in Canada that does not have a permanent establishment in the U.S. shall be taxable only in Canada. Will CRA agree to accept requests for competent authority relief under Article XXVI of the Convention on the basis that the taxes imposed under the GILTI rules may be in violation of Article VII?

CRA responded that under Para. XXIX(2) the Convention cannot affect the taxation by the US of its own residents, except to the extent provided in Para. XXIX(3) none of whose exceptions apply in this case, meaning that the Convention does not provide mechanisms to resolve the double-tax situation involving double-taxation arising from the new GILTI rules.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 26 Cdn competent authority will not recognize claims that GILTI tax is contrary to Art. VII 96

13 June 2017 STEP Roundtable Q. 9, 2017-0697901C6 - S-corporation agreements

Cdn competent authority agreement with S-Corp. extends to income of a qualified subchapter S Corp. subsidiary thereof

Where a U.S. S Corp. holds the shares of a qualified subchapter S Corp. subsidiary (“QSSS”), is the Canadian-resident shareholder of the S Corp. required to enter into two separate S Corporation Agreements with the Canadian competent authority respecting both corporations in order to have Art. XXIX(5) apply to the income of both?

CRA indicated that the template S-Corp. agreements provides that the income of the S-Corporation that is deemed to be foreign accrual property income is to be determined under the Code, which will include the income of the QSSS – so that there is no need for the Canadian shareholder to enter into a separate S-Corp. agreement with respect to the QSSS.

13 June 2017 STEP Roundtable Q. 8, 2017-0693381C6 - Single-member disregarded U.S. LLC

single member LLC with dual resident member could elect to be C-Corp and S-Corp, and then consider applying for relief under Art. 29(5)

A single-member disregarded U.S. limited liability company (“SMLLC”), whose member is a resident of Canada, is factually resident in Canada and, thus subject to Part I tax, whereas U.S. source income (e.g., business income form a U.S. permanent establishment) would also be subject to U.S. income tax in the hands of the member, without the SMLLC being entitled to claim any foreign tax credit for such U.S. tax paid by its member. Is there Convention relief from double taxation?

CRA noted that if the member was a dual resident or U.S. citizen, and the LLC elected to be taxed as an S-Corp after electing to be taxable as a C-Corp, it would be subject to pass-through taxation for U.S. income tax purposes like a typical disregarded US LLC. However, the member might be able to request competent authority assistance pursuant to Art. 29(5).

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 26 no relief under Art. 26(1) of US Treaty re LLC with U.S.-source income and single Canadian-resident member 145
Tax Topics - Income Tax Act - Section 125 - Subsection 125(1) 20(12) deduction where LLC with U.S.-source income and single Canadian-resident member - or FTC if U.S. sources of income 182

19 September 2015 STEP Roundtable, Q.4

S Corp election

Are there circumstances where a request under Art. XIX, para. 5 of the Canada-U.S. Treaty would be denied, and should be returns be filed contemporaneously with the competent authority request assuming the request will be granted?

After noting that, in the absence of an S Corporation agreement under the Treaty, the shareholder may not qualify for full (or any) foreign tax credit relief, CRA indicated that Art. XIX, para. 5 does not apply automatically (i.e., application to the competent authority for the S Corporation agreement is necessary) and that if the shareholder has an interest in more than one S Corporation, a separate agreement is required for each S Corporation. Factors affecting the calculation of the Canadian shareholder's Canadian taxation position include:

  • the income of the S Corporation is computed under US tax rules, so that, for example, the full amount of a capital gain would be included in the shareholder's FAPI
  • dividends paid to the shareholder by the S Corporation are excluded from the shareholder's income, but only to the extent of the accumulated amount of FAPI that has been included in their income already
  • S Corporation losses cannot be deducted from income, including income from other S Corporations, in the year
  • losses from an S Corporation can be carried forward and deducted [under Reg. 5903] against the income from the S Corporation if it realizes income in later years
  • the income of an S Corporation attributed to a shareholder is not earned income for purposes of the RRSP contribution limit
  • the agreement does not relieve the shareholder from the obligation to file a T1134
  • the agreement imposes an obligation on the shareholder to retain various worksheets to provide support in the event of an audit

The competent authority may refuse to provide an S Corporation agreement if the shareholder does not submit the information requested by a competent authority or the Canadian shareholder is seeking to revise his Canadian tax reporting for past years.

It is not uncommon for a shareholder to request an S Corporation agreement and, while the request is under consideration, file the Canadian returns in the expectation that an S Corporation agreement will be provided.

21 October 2013 External T.I. 2013-0477121E5 - FTC and US Expat Regime

FTC for 30% US pension withholding

A taxpayer who has renounced his US citizenship elects under Code s. 877A to irrevocably waive any right to claim any reduction in withholding on future pension payments under any US treaty and pay a flat 30% US tax on the taxable portion of all future pension payments. CRA stated:

[T]he interaction between section 126… and the provisions of the Canada-US Treaty will not limit the amount claimed by the taxpayer for non-business-income tax paid to the US in respect of the US-sourced periodic pension payments to 15% during the 10-year period described in Article XXIX(2)(b)… . [F]ollowing the taxpayer's US expatriation and during this subsequent 10-year period, the full amount of US withholding tax on the future taxable distributions from the US pension will be considered non-business-income tax paid by the taxpayer to a government other than Canada for purposes of a foreign tax credit claim pursuant to subsection 126(1)… .


Re application of paragraph 4 of Article 27 of the Canada-U.K. Convention where a share of a U.K. corporation held by a resident of Canada is purchased for cancellation. RC states that "both the amount of $101 representing the purchase price for cancellation and the U.K. tax credit of $25 would be considered to be proceeds of disposition of the share giving rise to a capital gain treatment. The Canadian resident would be allowed a foreign tax credit for the aggregate U.K. withholding tax of $18.75 levied on the purchase price of the share and the U.K. tax credit."

20 October 1992 T.I. 922116 (September 1993 Access Letter, p. 418, ¶C111-055)

A non-resident of Canada who was resident in England but not domiciled there for tax purposes, and who on her death in England is subject to English estate duty to a deemed disposition under s. 70(5) on shares of a private Canadian corporation and would not be considered to be taxed in the U.K. by reference to an amount that was remitted to or received in the U.K. as a result of such deemed disposition. Accordingly, paragraph 2 of Article 27 of the Canada-U.K. Convention would not apply.

22 July 1991 T.I. (Tax Window, No. 7, p. 22, ¶1364)

Paragraph 2 of Article XXVII of the Canada-U.K. Convention not only restricts the right of taxpayers to claim total exemptions under the Convention, but also restricts the right to claim partial or rate relief.