http://www.thestar.com/columnists/article/277949

Working, saving, investing and borrowing across the Canada-United States border is about to become less taxing. Long-awaited changes to the 1980 income tax convention between Canada and the U.S. will benefit cross-border workers who belong to pension, profit-sharing or stock-option plans.

Savings in tax, or effort, will also apply to those who earn or pay interest on the other side of the border or who pay tax on gains in the value of public-company shares on leaving one country, and later sell the shares in the other country.

The new rules will come into force after each country ratifies the "fifth protocol" agreement. Canada has introduced enabling legislation in the Senate before Parliament, oddly enough. The goal is to have the September deal come into force in 2008, provided U.S. senators also manage to enact legislation in time.

But, even if the changes come later, Canada has announced January is when financial institutions can stop applying a 10 per cent withholding tax on interest income paid to U.S. residents. Canada will also stop applying the same tax when investors declare interest paid to arm's-length or unrelated lenders in the U.S.

"The elimination of the withholding tax makes it less complicated to hold Canadian investments" that pay interest, notes Jennifer Horner, a tax specialist at Ernst & Young LLP. "The government had been promising this for a while."

Saving for retirement can be complicated by a move across the border, where deductions and deferrals may not be recognized by local tax authorities. The changes will help make the border more seamless.

A Canadian worker posted to a job across the border will be able to claim a deduction from U.S. income taxes for contributions made to a pension or profit-sharing plan in the home country. Those living and paying taxes in Canada will also get to claim deductions for contributions made to pension plans earned while working across the border. Canada will not tax annual investment gains in Roth individual retirement accounts.

"It is actually making things more equitable," says Gena Katz, also a tax specialist with Ernst & Young. "It gives the same tax treatment on both sides of the border."

Currently, anyone who owns shares in a public company is deemed to sell them when he or she leaves our country, and must pay tax on half of any gain in value. This is sometimes referred to as a departure tax. Under the proposed changes, the U.S. will recognize this notional sale of shares, and tax only the rise in value of the shares that occurs afterward.

Horner said it has been possible since 1996 to avoid double taxation on capital gains on shares by also filing a Canadian tax return.

But it will now be simpler for those who moved to the U.S. after Sept. 17, 2000, and have yet to sell shares bought while in Canada.

Employees who make a profit on stock options after moving across the border will pay tax to both Canadian and American governments, but only in proportion to the time each person had the options while living in a particular country.

Ernst & Young and various other accounting and legal firms have discussed in detail these and other proposed treaty changes on the companies' websites. A Google search will find them.

But the simplest primer on the changes is provided at http://www.fin.gc" rel="nofollow">LINK .ca, the Canadian finance department's website.