Confusion over treaty Article XI, Interest

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Canadian Newbie
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Joined: Thu Mar 12, 2015 11:59 am

Confusion over treaty Article XI, Interest

Post by Canadian Newbie »

I am a US Cit residing in Canada. After reading the posts here I have decided to tackle my tax filings on my own this year. I have dug into the treaty and understand most of it.

I am still a little confused on the wording regarding interest income. I earned about 3,000 CDN based interest on bank accounts and a paltry 250 on US accounts. I realize that the treatment is all of the 3,250 will be taxed in Canada with no credit for US tax. I will take tax credits on my 1040 for the Canadian tax.

I am confused after reading the treaty why I am not subject to at least a tax of %10 in the US.

Paragraph 2 states-
2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of such interest, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

Can someone explain why this paragraph does not apply? Or am I incorrect and it in fact does apply?

Thanks in advance.
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