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Exchange of Notes (October 1 and September 17, 1973) between the Government of Canada and the Government of the United States of America constituting an Agreement concerning the Administration of Income Tax in Canada affecting employees within Canada and the U. S. A. subject to such taxation [1973] CATSer 10 (17 September 1973)

E102358 - CTS 1973 No. 33

EXCHANGE OF NOTES BETWEEN THE GOVERNMENT OF CANADA AND THE GOVERNMENT OF THE UNITED STATES OF AMERICA CONSTITUTING AN AGREEMENT CONCERNING THE ADMINISTRATION OF INCOME TAX IN CANADA AFFECTING EMPLOYEES WITHIN CANADA OF THE U.S.A. SUB­JECT TO SUCH TAXATION

I

The Ambassador of the United States of America to the Secretary of State for External Affairs of Canada

Ottawa, August 1, 1973

No. 157

The Honorable Mitchell Sharp
Secretary of State for External Affairs
Ottawa

Sir,

I have the honor to refer to recent discussions between representatives of the Government of the United States of America and representatives of the Government of Canada concerning the administration of income tax in Canada affecting employees within Canada of the Government of the United States of America who are subject to such taxation. In accordance with the understanding reached in these discussions, the Government of the United States of America and the Government of Canada, recognize:

(a) the personal responsibility of all citizens to meet their tax obligations in their own country;

(b) the responsibility of employers within Canada to withhold income tax from the remuneration payable to employees subject to such taxation;

(c) the inapplicability of tax withholding laws in Canada to foreign diplomatic missions, and the absence of authority under United States law to compel the United States Government to withhold amounts from the remuneration of its employees in accordance with income tax legislation in Canada to which such employees are subject; and

(d) the desire by the United States Government, within the limits of United States law, to cooperate fully in facilitating payment by its employees of their income tax in accordance with income tax legisla­tion in Canada.

The Government of the United States of America has, therefore, the honor to propose the following:

(a) The United States Government will institute in Canada an allotment system under which those United States Government employees sub­ject to income tax legislation in Canada will be urged to make bi-weekly allotments from their United States Government remunera­tion in order to meet their obligation to pay income tax.

(b) The United States Government agencies, at the end of each month, will remit the total of such allotted amounts to the Receiver General of Canada by established methods.

(c) The ultimate determination of such final income tax liability will be based on the annual tax return made by the individual United States Government employee to the Government of Canada. Settlement of additional tax payments, beyond the total of allotted installment pay­ments, or refund of possible overpayments, will be a matter between the individual employee and the Government of Canada. The United States Government will not authorize allotments of amounts in excess of those provided for in (2) (e) below and the United States Govern­ment shall not be liable for the payment of its employees' income tax in amounts beyond those voluntarily allotted by employees pursuant to this agreement.

(d) At the end of each calendar year, the United States Government agencies will:

(1) provide to each United States Government employee a statement of remuneration paid on a form prescribed by the Government of Canada which will reflect total annual earnings, Canada Pension Plan contributions or Registered Pension Fund contributions, and the amount allotted for income tax installment payments which have been paid by the United States Government to the Govern­ment of Canada on his behalf; and,

(2) provide the Department of National Revenue, Taxation, a sum­mary of payments on a form prescribe by the Government of Canada, which shows the totals deducted or allotted from each employee for the various categories of remittances.

(e) The allotment system will be applicable to those employees of the United States Government who on the basis of their United States Government remuneration would be liable to pay income tax in Canada, that is, to those employees whose taxable remuneration exceeds their total exemptions under the said income tax legislation. Arrangements will be made, with respect to current tax liability only, to permit the said employees to make allotments in an amount corresponding to that which would otherwise be withheld under income tax legislation in Canada.

(f) The agencies of the United States Government in Canada will insti­tute the above described allotment system within sixty days from completion of the exchanges of notes constituting this agreement.

(g) This agreement does not in any manner alter the privileges and immunities derived by the contracting parties and their officers and employees from generally accepted principles of international law and from treaties and agreements in force between them nor shall this agreement affect the tax exempt status of any person. This agreement shall not subject the United States Government, its departments or establishments, or its officers or non-Canadian employees to any judicial or administrative action whether civil or penal in nature.

(h) Technical implementing procedures may be entered into by repre­sentatives of the United States Government and the Government of Canada, Department of National Revenue, Taxation.

If these proposals are acceptable to the Government of Canada, I have the honor to propose that this Note, and your reply, shall constitute an Agreement between the Government of the United States of America and the Govern­ment of Canada which shall enter into force on the date of your reply.

Accept, Sir, the renewed assurances of my highest consideration.

Adolph W. Schmidt

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The Secretary of State for External Affairs of Canada to the Ambassador of the United States of America

Ottawa, September 17, 1973

No. FLA-506

His Excellency the Honourable Adolph W. Schmidt
Ambassador of the United States of America
Ottawa.

Excellency,

I have the honour to refer to your Note No. 157 of August 1, 1973, in which you propose, on behalf of the Government of the United States, an agreement between the Government of the United States and the Government of Canada concerning the administration of income tax in Canada affecting employees within Canada of the Government of the United States who are subject to such taxation.

The proposals set out in your Note are acceptable to the Government of Canada and I therefore have the honour to confirm that your Note and this reply, which is equally authentic in French and English, shall constitute an agreement between our two Governments which will take effect on the date of this reply.

Accept, Excellency, the renewed assurances of my highest consideration.

Mitchell Sharp

Secretary of State for External Affairs