Canada’s current account surplus decreased by $C 5.3b in 2006Q4, thanks to a $C 4.5b deterioration of the income balance.
The puzzle about the Canadian income balance is exactly the opposite of the one posed by the US balance. We’ve been running a healthy current account surplus for 6 years now, and the net international investment position has increased to around -7% of GDP. But an investment balance deficit of $C 5b on an annual basis is something like still something like 1.4% of GDP.
In contrast, the US net investment position is a deficit of almost 25% of GDP, and its income balance only went negative a year ago. Even now, the deficit in the US income balance is only one-tenth of one per cent of GDP.
There are any number of reasons why the US investment balance defied gravity for so long: Asian central bankers and rich people in politically volatile areas have been happy to buy US assets even if they didn’t generate much in the way of return. But these reasons don’t easily explain why the Canadian investment balance is still so low.
Worthwhile Canadian Initiative 
Interesting question. I notice that the deficit is much larger for portfolio investments rather than direct investments. To what extent can a deficit on portfolio investments be explained by the fact that portfolio investors will tend to invest in market-leading firms, and Canada has few internationally-focused market leading companies (in fact, it has been losing them: Nortel is no longer the leading telecom equipment maker, Bombardier is no longer the largest builder of regional jets, business jets or rolling stock; etc) Comparing the international focus of Canadian companies to other small developed countries is depressing: compare Netherlands (ING, Shell, Phillips, TNT, etc), Sweden (H&M, Ikea, Volvo, Electrolux, etc), Switzerland (UBS, Credit Suisse, Nestle, etc).