It is an entrenched common law rule that domestic courts must refuse to enforce tax claims of a foreign government (United States of America v. Harden, [1963] SCR 366). This rule, known as the “revenue rule”, was once regarded as an unbreakable barrier to foreign governments seeking to collect taxes from individuals whose assets are situated in Canada. However, the revenue rule was circumvented in 1995 when Canada entered into a bilateral agreement as part of the U.S-Canada income tax treaty to provide mutual assistance in collection of taxes. The treaty now deems certain U.S. tax claims to be enforceable in Canada and requires the Canadian government to assist the U.S. government in their collection. In the same way, the U.S. government is required to provide assistance in collection of certain Canadian tax claims in the U.S.

The tax collection agreement between the U.S. and Canada was the first of its kind adopted by Canada. Since then, Canada has ratified a number of similar agreements with Netherlands, Germany, Norway and most recently, UK in 2014. Canada also has signed tax collection agreements with New Zealand and Spain, which are waiting to be ratified. However, certain exceptions may apply to narrow the scope of some agreements. For example, under the U.S.-Canada treaty, Canada is not required to provide assistance in collection of U.S. tax if the taxpayer is a Canadian citizen during the period that relates to the tax claim.

The trend appears to be that Canada is expanding its network of tax collection agreements to gain the ability to collect taxes in other countries, and at the same time allowing more foreign governments to collect taxes in Canada. The Canada-UK treaty likely will not be the last of its kind – Canada is currently negotiating and renegotiating income tax treaties with Australia, China, Israel, Madagascar and Malaysia. These negotiations may well result in more tax collection agreements.