Eagle -- summary under Foreign Asset Income Funds and LPs

It is proposed that a TSX-listed mutual fund trust (Eagle Energy Trust), through a sub trust ("CT"), will hold a Delaware LP which will carry on a US oil and gas business.

Canadian taxation

Eagle Energy Trust is not subject to the SIFT tax because its only asset is a portfolio investment entity (CT) as defined in s. 122.1(1); i.e., the only assets of CT are the Delaware LP, which is not a "subject entity" as defined in s. 122.1(1) (see p. 92). Eagle Energy Trust is not subject to a Canadian-ownership requirement (s. 132(7)) as the units and debt of CT are not taxable Canadian property.

US taxation

Both trusts will elect to be treated as corporations (see p. 96). Eagle Energy Trust will have no business activity in the U.S. and, therefore, no effectively connected income. LP will be disregarded for US tax purposes (its GP is an LLC). Accordingly, CT will be treated as carrying on the oil and gas business, thereby potentially giving rise to US corporate income taxes and 5% branch tax to it. CT anticipates that it will be entitled to deduct the interest it pays to Eagle Energy Trust on the CT Notes (based inter alia on the CT Notes being treated as debt and satisfying the earnings stripping rules in s. 163(j)). The interest on the CT Notes should be exempt from US withholding tax under the Treaty.