The estate of a deceased U.S. citizen may be considered a U.S. estate under U.S. domestic law, and also a Canadian resident estate under the ITA central management and control test or s. 94. How is Art. IV(4) of the Treaty applied?
CRA indicated that in addition to the factors of residence listed in S6-F1-C1, the competent authority will consider:
- the residence of the settlor;
- the residence of the beneficiaries;
- the type and location of the trust property; and
- the reason that the trust was established in a particular jurisdiction.
It is generally the Canadian competent authority’s position that it would not be appropriate to cede on the Canadian residency of a trust, on the basis that the tests of residency under s. 94 are neither inferior nor subordinate to any other tests of residency, and given that s. 94 anticipates providing full relief for any foreign taxes paid by the trust. Thus, it is the Canadian competent authority’s expectation that the negotiation of treaty residence in such cases will generally not be possible or advisable.
However, the Treaty should be applied to a deemed resident trust to avoid any unexpected double-tax. Once income tax returns have been filed in Canada, the Canadian competent authority will accept requests from trusts that are deemed resident in Canada seeking relief from double tax. That relief could be provided unilaterally or the Canadian competent authority may enter into negotiations with the other contracting state to avoid any double tax that remains after the application of section 94.