CRA states that it lacks jurisdiction to determine whether a trust can elect under Art. XIII(7) of the Canada-U.S. Treaty to avoid double taxation of a s. 104(4)(b) gain

CRA indicated that it considered that it was within the IRS’s jurisdiction and not its jurisdiction to determine whether the trust is eligible to elect pursuant to Art. XIII(7) the Canada-U.S. Treaty to have a notional sale and repurchase of the U.S. real property occur for U.S. purposes in the same year as that of the s. 104(4)(b) deemed disposition.

In also indicating that there would be no relief under Art. XXIV(2)(a) of the Treaty from the double taxation arising if there was no U.S.-source income for s. 126(1) purposes in the year of disposition for U.S. purposes, it noted that Art. XXIV(2)(a) is expressly “subject to the provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada,” and stated that “this means that a Canadian resident is subject to the limitations on claiming a foreign tax credit found in the Canadian legislation, and more specifically in section 126, including a timing restriction on when a foreign tax credit may be claimed (see … 2015-0601781E5 … .)

Neal Armstrong. Summaries of 3 February 2022 Internal T.I. 2021-0922301I7 under Treaties – income Tax Conventions – Art. 13, Art. 24.