The Canadian Bankers Association said Friday it applauds the federal government for keeping its 2007 federal budget promise to eliminate the withholding tax as outlined in the updated Canada-U.S. Tax Treaty.

Finance Minister Jim Flaherty and U.S. Treasury Secretary Henry Paulson Jr. signed the update to the Canada-U.S. Tax Treaty this morning following a meeting in Chelsea, Que.

The fifth update to the treaty eliminates withholding taxes on cross-border interest payments.

“This tax was a barrier to the free flow of capital between the two countries and impeded the efficient functioning of capital markets,” said Nancy Hughes Anthony, CBA president and CEO. “The elimination of this tax will result in increased investment and a reduced cost of capital.”

“The banking industry has been advocating for years for these changes,” she added.

“This is a very positive step in the government’s efforts to simplify the Canadian tax system and give Canada a more competitive tax environment.”

The Canadian Institute of Chartered Accountants also welcomed the change, along with an extension of the benefits of the Tax Convention to certain limited liability companies.

“These two changes to the Canada-U.S. Tax Convention benefit all
Canadians,” said Kevin Dancey, CICA president and CEO.