Australia-Canada Double Taxation Convention Amended

The Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, today announced that the Amending Protocol to the Australia-Canada Double Taxation Convention would first apply from 1 January 2003.

The Protocol will apply in Australia for withholding tax purposes in respect of income derived by residents of Canada, on or after 1 January 2003. It will first have effect for other Australian taxes in relation to income derived on or after 1 July 2003.

The Protocol will first have effect in Canada for withholding tax purposes in relation to amounts paid or credited to residents of Australia, on or after 1 January 2003. For other Canadian taxes covered by the Protocol, it will first apply for taxation years beginning on or after 1 January 2003.

Senator Coonan said the Protocol would assist in enhancing the already substantial bilateral framework for trade and investment relations with Canada.

"There are approximately 100 Australian companies active in the Canadian market with sizeable investments in breweries, mining, transportation and packaging," Senator Coonan said.

"Canada now ranks as the 14^th largest source of investment in Australia while Australia's reciprocal investment in Canada ranks 11^th. Overall, Canada is Australia's 17^th largest trading partner with two-way trade reaching $A3.6 billion in the 2000-2001 financial year."

Signature of the Protocol took place in Canberra on 23 January 2002. Details of the agreement were made public at the time and legislation providing for the agreement to be given the force of law in Australia - the International Tax Agreements Amendment Act (No.2) 2002 - received Royal Assent on 11 December 2002.

"A significant benefit of the Protocol is the lowering of limits on dividend and interest withholding taxes and branch profits taxes," Senator Coonan said.

"This will benefit Australia through reductions in the level of Canadian tax on payments or income flows back to Australia."

Under the Protocol, the maximum rate of dividend withholding tax which either country may impose on non-portfolio dividends (ie dividends where the holding is greater than 10%) is reduced from 15% to 5%. All other dividends remain subject to a 15% treaty rate limit. To attract the reduced treaty rate, eligible dividends paid by Australian companies must also be fully franked. Such dividends will continue to be exempt from withholding tax under Australia's domestic law.

Under Canadian law, Canada may impose a notional tax on the profits of a local branch of a foreign corporation. (Australia does not currently impose such a tax.) Prior to the Protocol, the rate of branch profits tax was limited to 15%. The Protocol now reduces the maximum rate of branch profits tax to 10%.

The Protocol lowers the maximum rate of interest withholding tax which either country may impose from 15% to 10%.

The Protocol reduces the possibility of double taxation of capital gains by extending coverage of the Convention to taxes on such gains. It also addresses business concerns regarding the application of Australia's capital gains tax to Canadian expatriates departing Australia.

Formal notification of the entry into force of the Protocol will be published in the Gazette as soon as practicable.

Copies of the Protocol are available on the Department of the Treasury's internet site (http://www.treasury.gov.au) at "What's New".

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