The sole beneficiary of a trust (the “Trust”) that is resident in the U.S. for purposes of the Canada-U.S.Treaty is the parent of a US group of entities (“US Parent”), and the Trust's sole beneficiary is a wholly-owned U.S. subsidiary of US Parent (“US Opco”). Canco, also in the group, carries on business in Canada. The US group of entities has funded the Trust which has then financed Canco by way of debt. May US Opco be considered related to the Trust for purposes of Art. XXIX-A, para. 3? After noting the relevance of domestic definitions of a term under Art. III, para. 2, CRA stated that "the phrase 'person related thereto' should take its meaning from subsection 251(2)." After then referring to the ss. 104(1) and (2) rules, it then stated:
Accordingly, the reference to the trust in paragraph 104(2) of the Act is a reference to the trustee having ownership or control of the trust property pursuant to paragraph 104(1) of the Act. Therefore, that trustee will be deemed to be an individual in respect of the trust property.
According to subparagraph 251(2)(b)(i) of the Act, “related persons” or persons related to each other includes a corporation and a person who controls the corporation, if it is controlled by one person. The trustee will be an individual in respect of the trust property and if the beneficiary is a corporation that is solely controlled by the trustee, the trust and the beneficiary will be “related persons” or persons related to each other for purposes of the Act. ...
As such, in the hypothetical scenario described, given that US Parent, which is the sole trustee of the Trust, wholly owns US Opco, being the beneficiary of the Trust, and thus controls US Opco, in our view, US Opco may be considered a “person related thereto” in respect of the Trust for the purposes of paragraph 3 of Article XXIX-A in connection with Canadian taxes to which the Treaty applies.