Canada and the United States announced on December 15, 2008 that the September 21, 2007 protocol (the Protocol) to the Canada-United States Income Tax Convention (the Treaty) has now entered into force.

The effective date of the Protocol's provisions varies. The changes in the Protocol as they relate to withholding tax on cross-border payments (other than interest) generally apply as of February 1, 2009. The elimination (or, in the case of payments to related persons, the first-phase reduction to 7%) of withholding tax on most cross-border interest payments is retroactively effective to January 1, 2008.

The Protocol's changes will generally be effective for other (non-withholding) taxes for tax years that begin in 2009. For example, such changes would generally apply to a company with a November 30 year end beginning on December 1, 2009 (unless an earlier tax year end arises in 2009 resulting, for example, from an amalgamation involving the company).

Special timing applies to certain provisions of the Protocol, such as the Treaty benefit denial rules for certain hybrid entities and the new "services permanent establishment" rule. The application of these provisions is delayed until January 1, 2010.

For a discussion of the changes to the Treaty introduced by the Protocol, see the Osler Update of July 11, 2008.