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Canada-New Zealand

1 July 2015

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New Tax Treaty between Canada and New Zealand has Entered into Force

On 26 June 2015, a new income tax treaty between Canada and New Zealand entered into force. The treaty, signed 3 May 2012, replaces the 1980 income tax treaty between the two countries, which is currently in force. A 2014 protocol to the treaty amending Article 17 (Pensions) entered into force the same date.

Taxes Covered

The treaty covers Canadian taxes imposed by the Government of Canada under the Income Tax Act, and New Zealand income tax.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine the company's residence for the purpose of the treaty through mutual agreement based on its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If the authorities cannot reach mutual agreement, the company will not be entitled to claim any relief or exemption from tax provided by the treaty.

Permanent Establishment

The treaty includes the provision that a permanent establishment (PE) will be deemed constituted when an enterprise performs services within a Contracting State:

  • Through an individual who is present in that other State for a period or periods exceeding in the aggregate 183 days in any 12-month period, and more than 50% of the gross revenues attributable to active business activities of the enterprise during this period or periods are derived from the services performed in that other State through that individual; or
  • For a period or periods exceeding in the aggregate 183 days in any 12‑month period, and these services are performed for the same project or for connected projects through one or more individuals who are present and performing such services in that other State.

A PE will also be deemed constituted if an enterprise:

  • Carries on activities which consist of, or which are connected with, the exploration for or exploitation of natural resources, including standing timber, situated in a Contracting State; or
  • Operates substantial equipment in a Contracting State.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the voting power in the company paying the dividends; otherwise 15%
  • Interest - 10%
  • Royalties -
    • 5% for copyright royalties and other like payments in respect of the production or reproduction of any literary, dramatic, musical or other artistic work (excluding royalties in respect of motion picture films and royalties in respect of works on film, videotape or other means of reproduction for use in connection with television broadcasting);
    • 5% for royalties for the use of, or the right to use, computer software or any patent or for information concerning industrial, commercial or scientific experience (but not including any such royalty provided in connection with a rental or franchise agreement);
    • Otherwise 10%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not be available if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest or royalties are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares or an interest in a partnership, trust or other entity deriving more than 50% of their value from immovable property situated in the other State

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies in Canada from 1 August 2015 for withholding tax, and from 1 January 2016 for other taxes. It applies in New Zealand from 1 August 2015 for withholding tax and from 1 April 2016 for other taxes.

The 1980 tax treaty will cease to have effect on the dates the new treaty applies, and will terminate on the last such date.

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