Protocol Amending the Convention Between Canada and Australia

Status of Negotiations

For the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income

The Government of Canada and the Government of Australia,

DESIRING to amend the Convention between Canada and Australia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income signed at Canberra on 21 May 1980 (in this Protocol referred to as the "Convention"),

HAVE AGREED as follows:

Article 2 of the Convention shall be deleted and replaced by the following:

1. The existing taxes to which this Convention shall apply are:

• (a) in the case of Australia:
• the income tax, and the resource rent tax in respect of offshore projects relating to exploration for or exploitation of petroleum resources, imposed under the federal law of Australia;
• (b) in the case of Canada:
• the income taxes imposed by the Government of Canada under the Income Tax Act.

2. This Convention shall apply also to any identical or substantially similar taxes which are imposed under the federal law of Australia or the law of Canada after the date of signature of this Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any substantial changes which have been made in the law of their respective States relating to the taxes to which this Convention applies within a reasonable period of time after those changes."

1. Subparagraphs (a) and (k) of paragraph 1 of Article 3 of the Convention shall be deleted and respectively replaced by the following:

2. Paragraph 3 of Article 3 of the Convention shall be deleted and replaced by the following:

• "3. As regards the application of this Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State concerning the taxes to which the Convention applies, any meaning under the applicable tax law of that State prevailing over a meaning given to the term under other law of that State.".

Paragraphs 1 and 2 of Article 4 of the Convention shall be deleted and replaced by the following:

• "1. Subject to paragraph 2, for the purposes of this Convention, a person is a resident of a Contracting State if that person is a resident of that State for the purposes of its tax. A Contracting State or any political subdivision or local authority thereof or any agency or instrumentality of any such State, subdivision or authority is also a resident of that State for the purposes of this Convention.
• 2. A person is not a resident of a Contracting State for the purposes of this Convention if the person is liable to tax in that State in respect only of income from sources in that State.".

Subparagraph (b) of paragraph 4 of Article 5 of the Convention shall be deleted and replaced by the following:

• "(b) substantial equipment is being used in that State by, for or under contract with the enterprise other than in connection with a building site or construction, installation or assembly project of the enterprise.".

Article 6 of the Convention shall be deleted and replaced by the following:

1. Income from real property may be taxed in the Contracting State in which the real property is situated.

2. For the purposes of this Convention, the term "real property" in relation to a Contracting State, shall have the meaning which it has under the law of that State and shall include:

• (a) a lease of land and any other interest in or over land, whether improved or not, including a right to explore for mineral, oil or gas deposits or other natural resources, and a right to mine those deposits or resources; and
• (b) a right to receive variable or fixed payments either as consideration for or in respect of the exploitation of, or the right to explore for or exploit, mineral, oil or gas deposits, quarries or other places of extraction or exploitation of natural resources.

3. Any interest or right referred to in paragraph 2 shall be regarded as situated where the land, mineral, oil or gas deposits, quarries or natural resources, as the case may be, are situated or where the exploration may take place.

4. The provisions of paragraphs 1 and 3 shall also apply to the income from real property of an enterprise and to income from real property used for the performance of independent personal services.".

1. Paragraph 6 of Article 7 of the Convention shall be deleted and replaced by the following:

• "6. Where profits include items which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.".

2. A new paragraph 8 shall be added to Article 7 of the Convention as follows:

Paragraph 4 of Article 8 of the Convention shall be deleted and replaced by the following:

• "4. For the purposes of this Article, profits derived from the carriage by ships or aircraft of passengers, livestock, mail, goods or merchandise taken on board in a Contracting State for discharge at a place in that State shall be treated as profits from operations confined solely to places in that State.".

1. Paragraphs 2, 4 and 6 of Article 10 of the Convention shall be deleted and respectively replaced by the following:

2. The reference in paragraph 7 of Article 10 of the Convention to "15 per cent" shall be deleted and replaced by a reference to "5 per cent".

The reference in paragraph 2 of Article 11 of the Convention to "15 per cent" shall be deleted and replaced by a reference to "10 per cent".

1. Paragraph 3 of Article 12 of the Convention shall be deleted and replaced by the following:

2. A new paragraph 7 shall be added to Article 12 of the Convention as follows:

• "7. Without prejudice to whether or not such payments would be dealt with as royalties under this Article in the absence of this paragraph, the term "royalties" as used in this Article shall not include payments or credits made as consideration for the supply of, or the right to use, source code in a computer software program, provided that the right to use the source code is limited to such use as is necessary to enable effective operation of the program by the user.".

3. A new paragraph 8 shall be added to Article 12 of the Convention as follows:

Article 13 of the Convention shall be deleted and replaced by the following:

1. Income, profits or gains derived by a resident of a Contracting State from the alienation of real property situated in the other Contracting State may be taxed in that other State.

2. Income, profits or gains from the alienation of property, other than real property, that forms part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or pertains to a fixed base available in that other State to a resident of the first-mentioned State for the purpose of performing independent personal services, including income, profits or gains from the alienation of that permanent establishment (alone or with the whole enterprise) or of that fixed base, may be taxed in that other State.

3. Income, profits or gains from the alienation of ships or aircraft operated in international traffic, or of property, other than real property, pertaining to the operation of those ships or aircraft, shall be taxable only in the Contracting State of which the enterprise alienating such ships, aircraft, or other property is a resident.

4. Income, profits or gains derived by a resident of a Contracting State from the alienation of any shares or other interests in a company, or of an interest of any kind in a partnership, trust or other entity, where the value of the assets of such entity is derived principally, whether directly or indirectly (including through one or more interposed entities, such as, for example, through a chain of companies), from real property situated in the other Contracting State, may be taxed in that other State.

5. Nothing in this Convention shall affect the application of a law of a Contracting State relating to the taxation of gains of a capital nature derived from the alienation of any property other than that to which any of the preceding paragraphs of this Article apply.

6. Where an individual who ceases to be a resident of a Contracting State, and immediately thereafter becomes a resident of the other Contracting State, is treated for the purposes of taxation in the first-mentioned State as having alienated a property and is taxed in that State by reason thereof, the individual may elect to be treated for the purposes of taxation in the other State as if the individual had, immediately before becoming a resident of that State, disposed of and re-acquired the property for an amount equal to its fair market value at that time.".

1. Paragraphs 2 and 3 of Article 15 of the Convention shall be deleted and replaced by the following:

"2. Notwithstanding the provisions of paragraph 1, remuneration derived by an individual who is a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

• (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the year of income or taxation year of that other State; and
• (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of that other State; and
• (c) the remuneration is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in that other State.".

2. Paragraph 4 of Article 15 of the Convention shall be renumbered as paragraph 3.

Article 22 of the Convention shall be deleted and replaced by the following:

1. Income, profits or gains derived by a resident of a Contracting State which, under any one or more of Articles 6 to 8 and 10 to 19, may be taxed in the other Contracting State, shall for the purposes of the law of that other Contracting State relating to its tax be deemed to be income from sources in that other Contracting State.

2. Income, profits or gains derived by a resident of a Contracting State which, under any one or more of Articles 6 to 8 and 10 to 19, may be taxed in the other Contracting State, shall for the purposes of Article 23 and of the law of the first-mentioned Contracting State relating to its tax be deemed to be income from sources in the other Contracting State.".

Article 23 of the Convention shall be deleted and replaced by the following:

1. In the case of Australia, double taxation shall be avoided as follows:

• (a) subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle of this Article), Canadian tax paid under the law of Canada and in accordance with this Convention, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in Canada shall be allowed as a credit against Australian tax payable in respect of that income;
• (b) subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle of this Article), where a company which is a resident of Canada and is not a resident of Australia for the purposes of Australian tax pays a dividend to a company which is a resident of Australia and which controls directly or indirectly at least 10 per cent of the voting power of the first-mentioned company, the credit referred to in subparagraph (a) shall include the Canadian tax paid by that first-mentioned company in respect of that portion of its profits out of which the dividend is paid.

2. In the case of Canada, double taxation shall be avoided as follows:

• (a) subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions (which shall not affect the general principle hereof) and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Australia on profits, income or gains from sources in Australia shall be deducted from any Canadian tax payable in respect of such profits, income or gains;
• (b) subject to the existing provisions of the law of Canada regarding the allowance as a credit against Canadian tax of tax payable in a territory outside Canada and to any subsequent modification of those provisions (which shall not affect the general principle hereof) where a company which is a resident of Australia pays a dividend to a company which is a resident of Canada and which controls directly or indirectly at least 10 per cent of the voting power in the first-mentioned company, the credit shall take into account the tax payable in Australia by that first-mentioned company in respect of the profits out of which such dividend is paid; and
• (c) where, in accordance with any provision of this Convention, income derived by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income, take into account the exempted income.".

A new paragraph 6 shall be added to Article 24 of the Convention as follows:

• "6. For the purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that, notwithstanding that paragraph, any dispute between them as to whether a measure falls within the scope of this Convention may be brought before the Council for Trade in Services, as provided by that paragraph, only with the consent of both Contracting States. Any doubt as to the interpretation of this paragraph shall be resolved under paragraph 3 of this Article or, failing agreement under that procedure, pursuant to any other procedure agreed to by both Contracting States.".

A new Article 26A shall be added to the Convention immediately after Article 26 as follows:

Nothing in this Convention shall be construed as preventing Canada from imposing a tax on amounts included in the income of a resident of Canada with respect to a partnership, trust, or controlled foreign affiliate, in which that resident has an interest.".

The Government of Australia and the Government of Canada shall notify each other through the diplomatic channel of the completion of their respective internal procedures required for the bringing into force of this Protocol which shall form an integral part of the Convention. The Protocol shall enter into force on the date of the later of these notifications and its provisions shall thereupon have effect:

IN WITNESS WHEREOF the undersigned, duly authorised thereto by their respective Governments, have signed this Protocol.

DONE at Canberra, this 23^rd day of January 2002, in the English and French languages, the two versions being equally authentic.