CRA finds that a trust is related for purposes of Art. XXIX-A (3) of the Canada-U.S. Treaty to a corporation that is controlled by its corporate trustee

Under Art. XXIX-A (3) of the Canada-U.S. Treaty, a non-qualifying person that is resident in the U.S. may benefit from the provisions of the Treaty to the extent that, amongst other conditions, it or “a person related thereto,” is engaged in the active conduct of a trade or business in the U.S. CRA found that in the situation where a U.S. parent was the trustee of a U.S. trust whose beneficiary was a U.S. Opco that was engaged in a U.S. business, that U.S. Opco qualified as a related person for these purposes. CRA reasoned that, under Art. III(2) of the Treaty, the Canadian domestic rules on a related person governed this test of relatedness under Art. XXIX-A (3), and that under those rules and having regard to the deeming by s. 104(2) of a reference to a trust as being a reference to the trustee, the Trust controlled US Opco by virtue of its trustee (US parent) controlling US Opco – so that the Trust and US Opco were related.

This meant that the Trust potentially could access Treaty benefits in relation to its income derived directly or indirectly from Canada in connection with or incidental to US Opco’s (substantial) business. The particular income in question was interest on a loan that the Trust made to a Canadian-group company, but CRA did not comment on this aspect of the Art. XXIX-A (3) tests.

Neal Armstrong. Summary of 8 September 2017 External T.I. 2014-0549771E5 under Treaties – Articles – Art. 29A.