CRA rules that distributions made by a cross-border mutual fund trust to U.S. residents are exempt from withholding

All the distributions made by a listed Canadian mutual fund trust to its unitholders who are qualifying persons under the Canada-U.S. Treaty will not be subject to Part XIII tax. The distributions will be funded out of interest received by it on cross-border notes owing to it by the "US Opco" holding all its U.S. real estate assets and out of ROC payments made by US Opco to its Canadian holding company, which will be distributed as ROC payments by that Canadian holdco to the fund. The U.S.-source interest income will be exempted under Art. XXII, para. 2 of the Canada- U.S. Convention, which applies to income paid by a resident Canadian trust to a resident of the U.S. to the extent such income is "distributed out of income arising outside [Canada]."

Neal Armstrong.   Summary of 2014 Ruling 2013-0509431R3 under Treaties – Art. 22.