The Fifth Protocol (the "Protocol") to the Canada-U.S. Tax Convention (the "Convention") received the "advice and consent" of U.S. Senate on September 23, 2008 via unanimous consent. This represents the final hurdle for the Protocol on its passage to ratification; notification instruments between Canada and the U.S. will now be exchanged, which we anticipate will occur in the coming days.

Generally, the provisions of the Protocol enter into force on the date that these notification instruments are exchanged. The time at which the provisions of the Protocol will begin to affect a taxpayer will depend on the fiscal period or taxation year of that taxpayer; in respect of "taxes withheld at source" (that is, withholding taxes) the provisions of the Protocol shall have effect as of November 1, 2008, assuming that notification instruments are exchanged on or before September 30th. However, for other taxes, the provisions of the Protocol only take effect for taxation years (or fiscal periods) of the taxpayer that begin on or after January 1, 2009.

There are exceptions to these entry into force provisions for many of the Protocol's most significant provisions. The Protocol will have an effective entry into force for some of its provisions relating to interest withholding for non-arm's length parties, as of January 1, 2008. This date may affect the proper amounts of Canadian non-resident withholding tax that are exigible on transactions or payments (such as payments of interest) that have already taken place. The Protocol also contains important new provisions related to the limitation of treaty benefits for "hybrid" entities; the date for the entry into force of these provisions is now fixed as January 1, 2010.

We have previously discussed these, and other provisions of the Protocol, in Taxation Law @ Gowlings No. 116, in Canadian Tax @ Gowlings Vol. 5 No. 3, and in Special Bulletins of Canadian Tax @ Gowlings on September 25, 2007 and October 10, 2007.