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Revised double taxation agreement with Canada

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NO. 5i






A revised comprehensive double taxation agreement

between Australia and Canada was signed in Canberra today.

The new agreement, which, replaces an agreement

concluded in 1957, is necessary because of changes in the tax

laws of both countries, particularly in Canada, where major

reforms of the tax system came into effect in 1976. When

given the force of law, the agreement will have effect in

Australia from 1 July 1975 and in Canada from 1 January 1976.

it has been given the force of law in both countries. In

Australia's case, the agreement will be submitted to the

.Parliament under enabling legislation, to be introduced as

soon as practicable.

between the two countries and its provisions correspond

closely with those contained in other modern double taxation

agreements Australia has concluded.

In general, the agreement limits the tax which may

be levied by the country of source on dividends and interest

to 15 per cent, while the tax in the source country on royalties

is limited to 10 per cent. However, as is customary, these '

The new agreement cannot come into operation until

The agreement covers all forms of income flowing

2 .

limits will not apply to income effectively connected with a

permanent establishment or fixed base that a resident of one

country has in the other country.

The limits on the tax of the source country, on interest

and royalties are a new feature of double tax relief arrangements

between Australia and Canada. There is no such limit in the

existing agreement. Because the 15 per cent rate specified for

interest is only a limit it will not, of course, be applicable

to interest flowing from Australia on which the rate imposed

by Australian law is 10 per cent.

A number of the provisions of the new agreement will

have much the same practical effect as those in the agreement

which it is to replace. For example, important provisions

dealing with business profits and dividends are in this


Apart from other changes to bring the arrangements

with Canada into line with Australia's modern agreements, the

new agreement provides for limited taxation rights for the

country of source in respect of pensions paid to residents of

the other country and for some relaxation of the rules under

which residents of one country working for short periods in the

other are freed from taxation in the country being visited. "

Also, reflecting the difficulties that Canada has experienced

with such articles, the agreement does not include a provision

specifically covering taxation of the remuneration of professors

and teachers of one country who are visiting the other.

Measures for the relief of double taxation of income

that remains taxable in both countries correspond with those

that apply in the context of Australia's modern double taxation

agreements. For example, Australia is to give credit - as it

does now - for Canadian tax on dividends received by Australian

individuals. As is customary, the legislation giving the force

of law to the agreement in Australia will provide for the credit

method of relief to apply to interest and royalties derived by

Australian residents where the Canadian tax on the income is

3 .


limited by the terms of_the agreement to 15 or 10 per cent,

respectively. Other non-dividend income that Australian

residents derive from Canada will continue to be exempt from

Australian tax if taxed in Canada.

Transitional provisions will mean that the.old

agreement continues to apply generally, in Australia, in

respect of the 1979-80 and earlier income years and, in

Canada, in respect of the 1980 calendar year, in cases where

it would give a greater relief from tax of either country

than the new agreement does. Australian legislation to

apply the credit method of double taxation relief to interest

and royalties derived from Canada by Australian residents

will also have transitional provisions. These will in

practice mean that the credit method will apply to interest

derived after today, while for royalties the position will

be that Australian residents deriving such income before

tomorrow will not pay more total tax than would have been

paid but for the new arrangements.

Copies of the revised agreement will be available

to interested persons, at Taxation Offices in the capital

cities. -


21 May 1980