CRA indicates that a Cdn competent authority agreement with the Cdn shareholder of an S Corp. extends to income of a qualified subchapter S Corp. subsidiary thereof

Art. XXIX(5) of the Canada-U.S. Treaty contemplates the Canadian-resident shareholder of an S Corp. agreeing with the Canadian competent authority that the income of the S Corp will effectively be attributed to him or her as foreign accrual property income, so that the U.S. taxes payable by that shareholder can be eligible for a foreign tax credit. CRA indicated that since the template S-Corp. agreements provide that the FAPI that is so attributed is the income of the S Corp. computed under the Code, such income will include the income of a qualified subchapter S Corp. subsidiary of the S Corp – so that there is no need for the Canadian shareholder to enter into a separate S-Corp. agreement respecting the QSSS.

Neal Armstrong. Summary of 13 June 2017 STEP Roundtable, Q.9 under Treaties – Art. 29.