Anti‑Discrimination Provisions
Question
The anti-discrimination provisions have been extended to cover “nationals” who cannot be subjected to more burdensome “requirements” than residents of Canada. Will this mean that the compliance procedures in section 116 will not be applicable for U.S. nationals disposing of taxable Canadian property? If not, why not?
Response
Paragraph 1 of Article XXV of the Canada-U.S. Tax Convention provides that a citizen of a Contracting State who is a resident of the other State cannot be subject in that other State to any taxation or requirement connected therewith which is more burdensome than the taxation or connected requirements to which citizens of the other State in the same circumstances are or may be subjected. In essence, paragraph 1 of Article XXV ensures that a citizen of a Contracting State (e.g., the U.S.) who is a resident of the other State (e.g., Canada) is treated in the same manner as a resident citizen of that other State. This Article does not require either State to treat residents and non-residents in the same manner.
The Fifth Protocol amends Article XXV to substitute the term “national” for “citizen.” The amendment broadens the application of Article XXV since a national, unlike a citizen, includes a legal person other than an individual. However, the amendment does not change the basic requirement that, to obtain relief under Article XXV, a national of one State must be in the same circumstances as a national of the other State. In this respect, a U.S. national is not in the same circumstances as a Canada resident national unless the U.S. national is resident in Canada.
Section 116 does not apply to U.S. nationals or Canadian nationals who are resident in Canada. Similarly, section 116 applies to Canadian nationals and U.S. nationals who are not resident in Canada. In either case, U.S. nationals and Canadian nationals are treated in the same manner. Thus, section 116 does not subject U.S. nationals to more burdensome requirements than Canadian nationals in the same circumstances. Accordingly, the amendment to Article XXV to extend the protection of this Article to “nationals” of the Contracting State will not affect the application of section 116.