SECTION 2. BACKGROUND

Prior to amendment by the Protocol signed on September 21, 2007 (the “2007 Protocol”), Article XIII(7) of the Treaty provided that where, at any time, an individual was treated for purposes of taxation by one Contracting State as having disposed of property and was taxed in that State by reason thereof and the domestic law of the other Contracting State at such time deferred (but did not forgive) taxation, that individual could elect on his annual return of income for the year of such disposition to be liable to tax in the other Contracting State in that year as if he had, immediately before that time, sold and repurchased such property for an amount equal to its fair market value at that time.

Instances of double taxation arose under the prior version of Article XIII(7). Canadian residents who emigrated from Canada to the United States and paid Canadian departure tax on a deemed dis

position of their property could not elect to be liable for U.S. federal income tax on a deemed disposition of their property if they were not U.S. citizens immediately before they ceased to be residents of Canada and would not otherwise have been subject to U.S. federal income tax on a disposition of the property.