The Double Taxation Relief (Taxes on Income) (Canada) Order 1980

EXPLANATORY NOTE

The Convention with Canada scheduled to this Order replaces the Agreement signed on 12 December 1966. It provides that shipping and air transport profits, certain trading profits not arising through a permanent establishment and the earnings of temporary business visitors are, subject to certain conditions, to be taxed only in the country of the taxpayer's residence. Government salaries are normally to be taxed by the paying Government only. Pensions are normally to be taxed by the country of the taxpayer's residence, but where the pension exceeds £5,000 sterling (10,000 Canadian dollars) the excess may also be taxed in the country of source. United Kingdom public service pensions paid to a resident of Canada may be taxed in the United Kingdom. Payments made to visiting students and business apprentices for their maintenance, education or training are normally to be exempt in the country visited. Provision is made for income from immovable property to be taxed in the country in which the property is situated. Capital gains arising from the disposal of movable property will, in general, be taxed in the country of the taxpayer's residence, unless they arise from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country or from the disposal of petroleum exploration or exploitation rights or of related assets. Capital gains arising from the disposal of immovable property and from the disposal of shares in unquoted companies, of an interest in a partnership or trust, whose assets relate primarily to immovable property may also be taxed in the country in which the property is situated.

The rates of tax on income flowing from one country to the other are, in general, not to exceed 15 per cent in the case of dividends and interest and 10 per cent in the case of royalties. However copyright royalties (other than those relating to films and television) are to be exempt in the country of source. The rate of Canadian tax on trust or estate income from Canada is not to exceed 15 per cent.

The Dividends Article provides rules which are to apply to the taxation of dividends as long as under United Kingdom law an individual resident in the United Kingdom is entitled to a tax credit in respect of dividends paid by a company resident in the United Kingdom. Where a United Kingdom company pays a dividend to an individual resident in Canada or to a Canadian company controlling less than 10 per cent of the voting power of the United Kingdom company, the recipient will receive a tax credit. The credit will be equal to the tax credit which would be payable to a United Kingdom resident individual less a sum not exceeding 15 per cent of the aggregate of the dividend and tax credit.

Where income continues to be taxable in both countries relief from double taxation is to be given by the country of the taxpayer's residence. There are the usual provisions for safeguarding nationals and enterprises of one country against discriminatory taxation in the other country though an additional tax of not more than 15 per cent may be charged where the profits of a permanent establishment which a company resident in one country has in the other exceed £250,000 (500,000 Canadian dollars). Provision is also made for the exchange of information and for consultation between the taxation authorities of the two countries.

The Convention is, generally, to take effect in the United Kingdom for the year of assessment or financial year starting in 1976 but the provisions relating to the United Kingdom tax credit will take effect for dividends paid after 31 March 1973.