ETF News

Canada and U.S. start phasing out cross-border tax

OTTAWA, Dec 15 (Reuters) - Changes to a Canada-U.S. tax treaty that include eliminating a 10 percent cross-border tax went into effect on Monday, Canadian Finance Minister Jim Flaherty said.

Flaherty and U.S. Treasury Secretary Henry Paulson signed amendments to the bilateral treaty in September 2007, and Ottawa believes it will attract more U.S. investment.

“The increased trade and investment that it will induce is particularly timely given uncertain global economic conditions,” Flaherty said in a statement.

A key change is the complete phasing out of a 10 percent withholding tax on cross-border interest payments. The phase-out will be complete in three years.

The tax is applied to the interest income of nonresident lenders.

The revised treaty also makes large U.S. private equity firms subject to the treaty for the first time. It eliminates double taxation for some individuals who work and live on different sides of the border and are therefore hit with double taxation on items such as stock options and pension contributions. (Reporting by Louise Egan; editing by Peter Galloway)