20 June 2023 STEP Roundtable Q. 7, 2023-0959581C6 - Deemed Resident Trust and the Resident Portion -- summary under Paragraph (b)

49% of the shares of a non-resident corporation owned by a non-resident trust which has made a valid s. 94(3)(f) election were included in the resident portion, but the trust held 100% of the shares in all. CRA noted that s. 94(3)(f)(viii) provides that the resident portion trust and the non-resident portion trust are deemed to not deal with each other at arm’s length and s. 94(3)(a)(x) provides that a deemed resident trust is deemed to be resident in Canada throughout the particular tax year for purposes of determining whether a foreign affiliate is a controlled foreign affiliate (CFA) of the taxpayer. Accordingly, in light of s. (b)(ii) of the CFA definition (effectively deeming the resident portion trust to hold the shares of a non-arm’s length person), the corporation would constitute a CFA of the resident portion trust. Accordingly, its FAPI would be computed in the usual way based on its participating percentage (based on its 49% shareholding).