Principal Issues: Whether the CRA will treat a Qualified Subchapter S Subsidiary as a resident of the United States for the purposes of the Canada-U.S. Income Tax Convention
Position: Yes
Reasons: Consistent with the position adopted in 9816355 and 2005-0144621E5
2009-035276 XXXXXXXXXX M. Gauthier (613) 957-2095 February 26, 2010
Dear XXXXXXXXXX :
Re: Qualified Subchapter S Subsidiary
We are writing in response to your letter of December 18, 2009 in which you asked us to confirm that the Canada Revenue Agency (CRA) will continue to treat a qualified subchapter S subsidiary (QSub), as defined in section 1361 of the United States Internal Revenue Code, as a resident of the United States within the meaning of Article IV(1) of the Canada-U.S. Income Tax Convention (the "Treaty"). It is our understanding that a QSub is a wholly-owned subsidiary corporation of a subchapter S corporation ("S Corp") for which the S Corp has filed a QSub election. In your letter, you referred to our documents 9816355 and 2005-0144621 in which we indicated that as long as we consider the S Corp to be a resident of the United States, we would also consider its QSub to be a resident of the United States.
We confirm that the CRA has not modified its views on whether the S Corp is a resident of the United States under the Treaty and that the above-noted documents (9816355 and 2005-0144621) continue to reflect the position of the CRA.
We trust this information is of assistance to you.
Yours truly,
Daryl Boychuk
Manager, International Section I
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch