Principal Issues: How does the CRA apply the tie breaker rules provided by the Canada-U.S. Tax Convention in the context of a (1) double statutory residency of a trust and (2) a double residency of a trust under section 94 of the Act?
Position: (1) The double statutory residency of a trust will generally be settled by the competent authorities on a case-by-case basis, pursuant to the subsection IV(4) of the Canada-U.S. Tax Convention. In order to establish the residency of a trust, the Canadian Competent Authority may consider, among others, the settlor and beneficiaries' residency, the location of the trust's assets, the reason why the trust has been settled in a particular country, etc.
(2) The CRA considers that a deemed resident trust under section 94 is resident of Canada for the Tax Conventions' purposes and such rule is established in the new section 4.3 of the Income Tax Conventions Interpretation Act. In a case of a double taxation, a foreign tax credit calculated under the provisions of paragraph 94(3)(b) and section 126 will be available to the trust.
Reasons: Application of the Act, the Canada-U.S. Tax Convention, the Income Tax Conventions Interpretation Act and previous interpretations.