Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 1 Protocol amending the Convention with Canada
What is the Canadian Protocol?
1.1 The Canadian Protocol, once in force, will amend the Convention between Australia and Canada for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed on 21 May 1980 (referred to as 'the Convention' for the purpose of this chapter).
Why is the Protocol necessary?
1.2 The Protocol is required to amend the existing tax treaty to reflect modern business practice and changes to both countries' law and tax treaty practice since the Convention was negotiated. The Protocol will facilitate trade and investment between Australia and Canada by reducing withholding taxes in some circumstances and by extending coverage of the Convention to taxes on capital gains.
Main features of the Protocol
1.3 The Protocol between Australia and Canada accords substantially with treaty practice adopted in Australia's recent tax treaties.
Under the Protocol:
- •
- The list of taxes covered will be updated to include the resource rent tax imposed by Australia.
- •
- The definition of Australia will be revised to conform with Australia's current drafting approach.
- •
- A definition of international traffic will be included for the purposes of the Alienation of Property Article and the Dependent Personal Services Article of the Convention.
- •
- The scope of the substantial equipment provision in the permanent establishment definition will be widened. To constitute a permanent establishment, 'substantial equipment' need no longer be used for more than 12 months in a Contracting State and need not be used in relation to natural resources.
- •
- A new Income from Real Property Article will be substituted which accords with current Australian drafting practice and ensures the Article applies to leases and rights to explore for natural resources.
- •
- A new provision will be inserted to ensure that Australia can tax profits derived by a resident of Canada where those profits are effectively connected with a permanent establishment of a trust in Australia.
- •
- Taxation of dividends will be substantially revised with a 'split rate' limit on dividend withholding tax rates being adopted similar to the formula incorporated in Australia's most recent treaties. In the case of Australia, a dividend withholding tax rate limit of 5% for franked non-portfolio dividends and 15% for all other dividends will be implemented. Generally a reciprocal reduction in dividend withholding tax rate limits has been achieved.
- •
- The limitation on the rate of Canadian branch profits taxation rate will be reduced to 5%, consistent with the reduced dividend withholding tax rate limits.
- •
- The interest withholding tax rate limitation will be reduced from 15% to 10%.
- •
- The definition of royalties will be expanded in conformity with current Australian tax treaty practice.
- •
- A comprehensive Alienation of Property Article, in conformity with current Australian tax treaty practice, will be added to the Convention. The new Article clarifies the coverage of capital gains.
- •
- The treatment of employment income under the Dependent Personal Services Article will be substantially modified -including the deletion of the former monetary thresholds. Existing arrangements for taxation by the State in which employment is exercised will be modified to conform with current Australian and OECD tax treaty practice.
- •
- The method by which relief from double taxation is provided under the Convention will be revised to reflect current Australian and Canadian tax treaty practice.
- •
- A provision will be included requiring the consent of both Canada and Australia before the General Agreement on Trade in Services process for dispute resolution is invoked. This will prevent the possibility of a single country unilaterally taking to the Council on Trade in Services a dispute as to whether a measure falls within the scope of the tax agreement.
Detailed explanation of changes made by the Protocol
Amends Article 2 of the Convention - Taxes Covered
1.4 Article 1 of the Protocol updates the taxes covered by the Convention by replacing Article 2 of the Convention. In the case of Australia, the Protocol includes a specific reference to the resource rent tax in respect of offshore petroleum relating to exploration of petroleum resources. Although this tax is considered by Australia to be encompassed by the term 'Australian income tax', a specific reference is included to put beyond doubt that it is a tax covered by the Convention. [New paragraph (1)]
1.5 Under the new paragraph 2, the time specified for the notification of substantial changes in the laws of the respective States has been changed so that such changes need to be notified within a reasonable period of time after such changes. [New paragraph (2)]
Amends Article 3 of the Convention - General Definitions
1.6 The definition of Australia in the Convention is revised to conform with current Australian tax treaty practice. The definition is amended to make clear that the treaty definition of Australia includes the Territory of Heard Island and McDonald Islands.
Definition of international traffic
1.7 A definition of 'international traffic' is included for the purposes of the Alienation of Property Article and the Dependent Personal Services Article. In the Convention, this term is of relevance only for alienation of ships and aircraft (Article 13(3)) and wages of crew (Article 15(3)).
Removal of the deeming provision
1.8 A redundant provision (Article 3(1)(k)) which deemed words in the singular to include the plural meaning (and vice versa) has been deleted from the Convention in accordance with modern tax treaty practice as this is considered to be implicit.
1.9 Article 3(3) of the Convention, which allows recourse to definitions under domestic law where a term has not been defined in the Convention, is revised to accord with modern tax treaty language.
Amends Article 4 of the Convention - Residence
1.10 Paragraphs 1 and 2 of the Residence Article are revised to conform with the current tax treaty practice of both countries.
1.11 Article 4(1) of the Convention is amended to clarify that Governments, political subdivisions, local authorities or any agency or instrumentality of a State, Subdivision or authority are residents of States for the purposes of the Convention.
Exception for persons taxed only on income from sources in the State
1.12 Article 4(2) of the Convention is replaced with a paragraph which provides that a person is not a resident of a Contracting State if that person is liable to tax in that State in respect only of income from sources in that State.
Amends Article 5 of the Convention - Permanent Establishment
1.13 Article 4 of the Protocol expands the 'substantial equipment provision' of the Permanent Establishment Article of the Convention by removing the 12-month time threshold and requisite connection with natural resources. However, substantial equipment used in a State in connection with a building site or construction, installation or assembly project is not encompassed by this provision. Such equipment is dealt with under paragraph 2(h) of Article 5 of the Convention.
1.14 Australia's experience is that the permanent establishment provision in the OECD Model may be inadequate to deal with high value activities involved in the development of natural resources, particularly in offshore regions. For example, mobile equipment used in offshore exploration may not have the necessary geographical fixedness to be considered as permanent establishments under Article 5(1) of the Convention. Also construction of offshore oil drilling platforms can be effected in a relatively short time. Consequently, Australia has made a reservation to the OECD Model which indicates that Australia will seek to treat an enterprise as having a permanent establishment in Australia if substantial equipment is used in Australia by, for or under contract with the enterprise. New Article 5(4)(b) of the Convention reflects that reservation.
1.15 Substantial equipment used in a State 'in connection with a building site or construction, installation or assembly project' is expressly excluded from the operation of new Article 5(4)(b). This exclusion ensures that building sites which would not otherwise constitute a permanent establishment are not caught under new Article 5(4)(b) of the Convention.
Amends Article 6 of the Convention - Income from Real Property
1.16 The Protocol substantially revises Article 6 to conform with current Australian tax treaty practice by ensuring the Article covers leases and rights to explore for natural resources, as well as other real property.
1.17 Real property is effectively defined as including:
- •
- a lease of land and any other interest in or over land (including exploration and mining rights); and
- •
- royalties and other payments relating to the exploration for or exploitation of mines or quarries or other natural resources or rights in relation thereto.
[New paragraph (2)]
Where income from real property is taxable
1.18 The Protocol retains the general principle of the Convention that income from real property may be taxed in the State in which the property is situated. Thus, income from real property in Australia will be subject to Australian tax laws. [New paragraphs (1) and (3)]
Amends Article 7 of the Convention - Business Profits
1.19 Article 7(6) of the Convention, which sets out the relationship between the Business Profits Article and other provisions in the Convention dealing with business profits, is revised consistently with current international tax treaty practice.
1.20 A new paragraph 8 is added to Article 7 to clarify that Australia can tax business profits derived by a resident of Canada through one or more interposed trusts where the profits are effectively connected with a permanent establishment of the trust in Australia. The clarification of Australia's source country right to tax trust beneficiaries on their share of business profits effectively connected with an Australian permanent establishment is consistent with Australia's recent tax treaty practice and subsection 3(11) of the Agreements Act.
Amends Article 8 of the Convention - Shipping and Air Transport
1.21 The Protocol makes a minor modification to the wording of paragraph 4, changing 'another place' to 'a place'. This change ensures that domestic transport includes journeys which return to the port of origin, such as certain cruise ship operations. [New paragraph (4)]
Amends Article 10 of the Convention - Dividends
1.22 The Protocol substantially revises the treatment of dividends. In particular, the Protocol introduces a 'split rate' limitation on dividend withholding tax similar to the formula incorporated in Australia's most recent treaties. The main features of the amended Dividends Article are:
- •
- a maximum 5% rate of dividend withholding tax for non-portfolio dividends (to the extent they are franked, in the case of Australia; and to the extent they are not paid by Canadian non-resident-owned investment corporations);
- •
- 15% for all other dividends; and
- •
- reduction of the rate limit on Canadian branch profits taxation rate from 15% to 5%, to conform with the reduced maximum dividend withholding tax rate for non-portfolio dividends.
Rate of tax and exceptions to limitation
1.23 Under paragraph 2(a)(i) of Article 10, the rate of dividend withholding tax which Australia may impose is limited to 5% of the gross amount of the dividends, to the extent to which the dividends have been fully franked in accordance with Australian law, if the recipient is a company which holds directly at least 10% of the voting power of the company paying the dividends. Under Australia's domestic law, franked dividend payments will remain free of dividend withholding tax.
1.24 Under paragraph 2(a)(ii) of Article 10, the rate of dividend withholding tax which Canada may impose on dividends paid to a company with at least 10% control of the voting power of the company paying the dividends is also limited to 5%, except in the case of dividends paid by a non-resident-owned investment corporation that is a resident of Canada for the purposes of its tax. This exception represents Canadian tax treaty practice.
1.25 Non-resident-owned investment corporations are Canadian corporations owned by non-residents for the purpose of making investments in Canada. They were established to allow non-residents the choice of holding their Canadian investments personally or through a corporation such that either method of ownership would create the same tax result. Tax is initially paid by the non-resident-owned investment corporation at 25%, Canada's domestic standard withholding tax rate, rather than Canada's normal corporate tax rate. When a dividend is paid by the non-resident-owned investment corporation to its foreign shareholders, this tax is refunded and replaced by the appropriate rate of withholding tax on the dividend. It should be noted that this concessional regime is being phased out. Canada announced in 2000 that the special status granted to non-resident-owned investment corporations would be repealed for elections made after 27 February 2000. Existing non-resident owned investment corporations will be entitled to retain their status until the end of their last taxation year that begins before 2003.
1.26 The withholding tax rate on these and any other dividends not covered by paragraphs 2(a)(i) and (ii) will continue to be limited to 15% of gross.
1.27 The proviso allows for flexibility if there is a change to either country's general approach to dividend withholding tax. In such a case the two countries are obliged to consult to make appropriate amendments to this paragraph. [New paragraph (2)]
1.28 Consistent with Australia's current tax treaty practice, the Protocol modernises the definition of 'dividends' in paragraph 4 of the Article. The definition is not different in substance to the paragraph replaced. [New paragraph (4)]
1.29 In line with Canada's reservation to the OECD Model, the Convention includes a provision allowing for the imposition of a branch profits tax (paragraph 6 of Article 10). The paragraph is modified to reflect Canada's more modern tax treaty practice. The limit on Canadian branch profits taxation is reduced from 15% to 5%. [New paragraph (6)]
1.30 Article 10(7) of the Convention, which imposed a limit on Australian branch profits taxes, has been retained but with the limit reduced to 5%. Australia does not currently impose a branch profits tax. [New paragraph (7)]
Amends Article 11 of the Convention - Interest
1.31 The limit on the interest withholding tax rate is reduced from 15% to 10% by the Protocol. [New paragraph (2)]
Amends Article 12 of the Convention - Royalties
1.32 Article 10 of the Protocol amends the Royalties Article of the Convention. The changes exclude payments for the use of source code in a computer software program where the supply or right is granted merely to enable effective operation of the program by the user.
1.33 Payments for the use of spectrum licences are not dealt with in the Royalties Article. These payments remain, however, covered by subsection 3(11A) of the Agreements Act and are taxed as business profits under Article 7 of the Convention.
1.34 The Protocol extends the royalties definition in respect of broadcasting media to reflect modern technologies. The definition extends to include payments for the use of all means of image or sound reproduction or transmission for use in connection with television. The change clarifies that the source country can tax these payments as royalties. [New subparagraph (3)(e)(ii)]
1.35 Canadian tax treaty practice in relation to computer software, in accordance with its Observation to the Commentary to Article 12 of the OECD Model, is to treat as royalties, payments under contracts that require the source code in the computer software program to be kept confidential. However, new paragraph 7 provides that such payments will not be treated as royalties where the right to use the source code is limited to such use as is necessary to enable the user to operate the software program. In these cases, Article 7 of the Convention will apply. [New paragraph (7)]
1.36 The definition of royalties is amended to specifically include payments for the reception of, or the right to receive, visual images or sounds, or both transmitted to the public by satellite, cable, optic fibre or similar technology. The revised definition accords with Australia's domestic law definition. It is considered that payments of this kind are implicitly covered in the earlier definition of royalties. However, it was considered important to ensure that they are expressly included in the revised definition. [New subparagraph (8)(a)]
1.37 The revised definition also explicitly includes payments for the use or right to use in connection with television or radio broadcasting, visual images or sounds, or both transmitted by satellite, cable, optic fibre, or similar technology. [New subparagraph (8)(b)]
1.38 Consistent with Australian tax treaty practice, new subparagraphs 3(f) and (8)(c) expressly treat as a royalty, amounts paid or credited in respect of forbearance to grant to third persons, rights to use property covered by the
Royalties
Article. This is designed to ensure coverage of arrangements along the lines of those considered in
Aktiebolaget Volvo v. Federal Commissioner of Taxation
(1978)
8 ATR 747
;
78 ATC 4316
, where, instead of amounts being payable for the exclusive right to use the property, they were made for the undertaking that the right to use the property will not be granted to anyone else, not being subject to tax as a royalty payment under the terms of Article 12.
[New subparagraphs (3)(f) and (8)(c)]
Amends Article 13 of the Convention - Alienation of Property
1.39 The Protocol introduces a new Alienation of Property Article. The Protocol replaces the existing Alienation of Property Article with a comprehensive Article that:
- •
- permits source country taxation of amounts derived from alienation of real property and business property and on amounts derived from the alienation of land rich entities;
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- provides exclusive residence country taxation on profits from the disposal of ships or aircraft operated in international traffic;
- •
- improves arrangements for taxing gains accrued on certain assets held by departing residents by reducing compliance difficulties and ensuring appropriate relief is provided from double taxation; and
- •
- provides for capital gains not covered by specific distributive rules to be taxed in accordance with the domestic laws of each country.
1.40 This Article allocates between the respective States taxing rights in relation to income, profits or gains arising from the alienation of real property (as defined in Article 6 of the Convention) and other items of property.
1.41 Income, profits or gains from the alienation of real property may be taxed by the State in which the property is situated. This is in accordance with Australian and international tax treaty practice. [New paragraph (1)]
Source country taxation of amounts derived from alienation of business property
1.42 Paragraph 2 deals with income, profits or gains arising from the alienation of property - other than real property covered by paragraph 1 - forming part of the business property of a permanent establishment of an enterprise or pertaining to a fixed base used for performing independent personal services. It also applies where the permanent establishment itself (alone or with the whole enterprise) or the fixed base itself is alienated. Such income, profits or gains may be taxed in the State in which the permanent establishment or fixed base is situated. This corresponds to the rules for taxation of business profits and income from independent personal services contained in Articles 7 and 14 respectively. [New paragraph (2)]
Exclusive residence country taxation on the disposal of ships or aircraft
1.43 Income, profits or gains from the disposal of ships or aircraft operated in international traffic, or associated property - other than real property covered by paragraph 1 - are taxable only in the State in which the enterprise alienating the ships or aircraft is resident. This rule corresponds to the operation of Article 8 in relation to profits from the international operation of ships or aircraft in international traffic. [New paragraph (3)]
1.44 For the purposes of this Article, the term 'international traffic' shall not include any transportation which commences at a place in a country and returns to that place, after travelling through international waters but not visiting another country. [Article 2 of the Protocol]
Shares and other interests in land-rich entities
1.45 Paragraph 4 applies to situations involving the alienation of shares or other interests in companies, and other entities, the value of whose assets is derived principally from real property (as defined in Article 6) which is situated in the other country (again, in the terms of Article 6). Such income, profits or gains may be taxed by the country in which the real property is situated. This paragraph complements paragraph 1 of this Article and is designed to cover arrangements involving the effective alienation of incorporated real property, or like arrangements.
1.46 This is to be the case whether the real property is held directly or indirectly through a chain of interposed entities. While not limited to chains of companies, or even chains of entities only some of which are companies, the example of chains of companies is used to make clear that the corporate veil should be lifted in examining direct or indirect ownership.
1.47 This provision responds to the tax planning opportunities exposed by the decision of the Full Federal Court in the
Commissioner of Taxation v. Lamesa Holdings BV
(1997)
77 FCR 597
. It is designed to protect Australian taxing rights over income, profits or gains on the alienation or effective alienation of Australian real property (as defined in new Article (6)(2)) despite the presence of interposed bodies corporate or other entities.
[New paragraph (4)]
Capital gains not covered by specific distributive rules to be taxed in accordance with the domestic laws of each country
1.48 The Article contains a 'sweep-up' provision in relation to capital gains which enables each State to tax, according to its domestic law, any gains of a capital nature derived by its own residents or by a resident of the other State, from the alienation of any property not dealt with in the preceding paragraphs of the Article. It thus preserves the application of Australia's domestic law relating to the taxation of capital gains in relation to the alienation of such property.
1.49 This paragraph operates independently of Article 21, which contains sweep-up provisions in relation to items of income not dealt with in other Articles of the Convention. [New paragraph (5)]
Taxation of gains accrued on assets held by departing residents
1.50 Changes made by the Protocol help prevent double taxation that may arise when an individual changes residence. Unrealised gains on assets that do not have the necessary connection with Australia are generally taxable under Australia's domestic law when a person ceases to be a resident of Australia (section 104-160 of ITAA 1997). Double taxation can potentially arise in the new country of residence if that country taxes the gain on the subsequent disposal of the asset and does not provide a credit for the Australian tax.
1.51 New paragraph 6 allows an individual to elect in the new country of residence to be treated as having alienated the asset at the residence change time. The election will be available where the individual changes residence from one State to the other. As a result of that residence change, certain assets may be taken to have been alienated under the laws of the former country of residence such that the individual is taxable in that country on the residence change gain (or loss) that arises. Where the election is made, the property will be taken to have been alienated and reacquired in the new country of residence at the time the individual ceased to be a resident of the country of former residence (according to the taxation laws of that country). The alignment of the taxing point in both jurisdictions will help ensure appropriate relief is provided in the country that the individual is leaving for foreign tax that may have accrued in the other country.
Example 1.1
An individual departing Australia may, for instance, hold a less than 10% shareholding in an Australian public company. This shareholding will not have the necessary connection with Australia and thus the individual may be taken to have alienated the shares at the residence change time. Double taxation could arise if Canada taxes the pre-residence change component of the gain on a subsequent alienation of the shares.
If the election in paragraph 6 were exercised, the individual would be taken in Canada to have alienated the shareholding immediately before ceasing to be a resident of Australia under Australian tax law. The provisions of the Convention would then operate to ensure appropriate relief is provided from double taxation. Relief may not be required because Canada is unlikely to tax a non-Canadian resident on the disposal of a foreign asset. Canada would be able to tax the post-residence change gain on the subsequent disposal of the shareholding.
1.52 A residence change disposal will generally not give rise to a gain in the other country unless the asset has some connection with that country (e.g. the asset is real property situated in that country). Paragraph 6 will crystallise a gain immediately before an individual changes residence and the country in which the individual is resident at that point in time would generally be required to provide a credit for tax, if any, that arises in the other country. Australia would therefore provide a credit for Canadian tax that may be paid on the deemed disposal of a Canadian asset when an individual ceases to be a resident of Australia, and vice versa for Canada. [New paragraph (6)]
Amends Article 15 of the Convention - Dependent Personal Services
1.53 The Protocol amends the Dependent Personal Services Article to substitute new conditions under which employment income from short-term visits is exempted from tax in the country visited.
1.54 Generally, salaries, wages and similar remuneration derived by a resident of one country from an employment exercised in the other country are liable to tax in that other country. However, subject to specified conditions, there is a conventional provision for exemption from tax in the country being visited where visits of only a short-term nature are involved.
1.55 The Protocol replaces paragraphs 2 and 3 of Article 15, which set out the conditions for the short-term visit exemption, with a new paragraph 2. The new paragraph conforms with current Australian and international tax treaty practice.
1.56 The Protocol removes the existing exemption for remuneration not exceeding specified monetary limits derived during short-term visits. [New paragraph (2)]
Amends Article 22 of the Convention - Source of Income
1.57 The Protocol substitutes a new Source of Income Article. The new Article accords with current Australian tax treaty practice.
1.58 New paragraph 1 of this Article effectively deems income, profits or gains derived by a resident of one country which, under the Convention, may be taxed in the other country to have a source in the latter country for the purposes of the domestic income tax law of that other country. It therefore avoids any difficulties arising under domestic income tax law source rules in respect of, for example, the exercise by Australia of the taxing rights allocated to Australia by the Convention over income derived by residents of Canada. [New paragraph (1)]
1.59 New paragraph 2 is designed to ensure that where an item of income, profits or gains is taxable in both countries, double taxation relief will be given by the income recipient's country of residence (pursuant to Article 23) for tax levied by the other country as prescribed under the Convention. In this way, income derived by a resident of Australia, which is taxable by Canada under the Convention, will be treated as being foreign income for the purposes of the ITAA 1936, including the foreign tax credit provisions of that Act. [New paragraph (2)]
Amends Article 23 of the Convention - Methods of Elimination of Double Taxation
1.60 The Protocol substitutes a new Article on Methods of Elimination of Double Taxation . The new Article:
- •
- updates the language of the provision to reflect each country's modern tax treaty practice;
- •
- introduces provisions for the allowance of underlying tax credit relief in each country; and
- •
- introduces a new provision which permits Canada to provide exemption with progression.
1.61 The credit will include the allowance of underlying tax credit relief in respect of dividends paid by a Canadian resident company to an Australian resident company which controls directly or indirectly at least 10% of the voting power of the Canadian company. [New subparagraph (1)(b)]
1.62 Canada will allow underlying tax credit relief in respect of dividends paid by an Australian resident company to a Canadian resident company, controls directly or indirectly at least 10% of the voting power of the Australian company. [New subparagraph (2)(b)]
1.63 Australia considers that 'exemption with progression' is implicit in its credit provision. However, as Canada formally provides for exemption with progression within its credit rules, this has been explicitly expressed in new subparagraph 2(c). 'Exemption with progression' means that the country of residence may take into account income over which the country of residence does not have a taxing right for the purposes of calculating tax on the income over which it does have taxing rights. [New subparagraph (2)(c)]
Amends Article 24 of the Convention - Mutual Agreement Procedure
1.64 Article 15 of the Protocol inserts a new paragraph 6 into the Mutual Agreement Procedure Article of the Convention.
General Agreement on Trade in Services dispute resolution process
1.65 Paragraph 3 of Article XXII of the General Agreement on Trade in Services provides that a disputed measure that falls within the scope of an 'international agreement relating to the avoidance of double taxation' may not be resolved under the dispute resolution mechanisms provided by Articles XXII and XXIII of the General Agreement on Trade in Services.
1.66 If there is a dispute as to whether a measure actually falls within the scope of a tax agreement, however, either country may take the matter to the World Trade Organisation's Council on Trade in Services for referral to binding arbitration.
1.67 Article 24(6) of the Convention is introduced to require the consent of both Australia and Canada before a dispute as to whether a measure falls within the scope of the tax agreement may be brought before the Council on Trade in Services. [New paragraph (6)]
Inserts new Article 26A - Various Interests of Canadian Residents
1.68 Article 16 of the Protocol clarifies that Canada may tax income of Canadian residents relating to partnerships, trusts or controlled foreign affiliates in which the resident has an interest. The majority of OECD member countries accept that anti-abuse measures, such as the CFC rules, are a necessary means of attaining equity and neutrality of international tax laws. Australia considers that its CFC regime is consistent with the requirements of the Convention, as amended by this Protocol. In particular, Australia considers there is no conflict between the CFC rules and Articles 7 and 10(3) of the Convention. However it is Canadian tax treaty practice to expressly confirm the preservation of the operation of its CFC rules in its double tax treaties.
1.69 Article 17 provides for the entry into force of the Protocol.
1.70 The Protocol will enter into force on the latest date on which notes are exchanged between the two countries formally advising of the completion of all the requirements necessary to give the Protocol effect in the domestic law of Australia and Canada.
1.71 Once it enters into force, the Protocol will apply in Australia in respect of withholding tax on income that is derived by a Canadian resident in relation to income derived on or after 1 January in the calendar year after entry into force. That would be 1 January 2003 if it enters into force during the 2002 calendar year [Article 17 (a)(i) of the Protocol] . For other Australian taxes, the Protocol will apply to income, profits or gains derived by a person in a year of income beginning on or after 1 July in the calendar year next following that in which the Protocol enters into force [Article 17(a)(ii) of the Protocol] . The Protocol would thus apply to these taxes starting from the year of income commencing on or after 1 July 2003 if the Protocol enters into force during the 2002 calendar year.
1.72 The Protocol will apply in Canada in respect of withholding tax on income that is paid or credited by an Australian resident in relation to income derived on or after 1 January in the calendar year after entry into force. That would be 1 January 2003 if it enters into force during the 2002 calendar year [Article 17 (b)(i) of the Protocol] . For other Canadian taxes, the Protocol will apply to income, profits or gains derived by a person in a taxation year beginning on or after 1 January in the calendar year next following that in which the Protocol enters into force. The Protocol would thus apply to these taxes starting from the year of income commencing on or after 1 January 2003 if the Protocol enters into force during the 2002 calendar year [Article 17 (b)(ii) of the Protocol] .
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