SSCF - US Ct of Federal Claims finds that a Cdn charity did not derive US portfolio dividends through a Canadian unit trust, to which Art. IV(6) cannot extend

The plaintiff (“SSCF”) was a Canadian registered charity that sought a pro rata refund under Art. XXI(1) of the Canada-U.S. Convention of U.S. taxes that had been imposed on U.S.-source portfolio dividends received by a Canadian unit trust (“Greystone Fund”) of which SSCF was a unitholder and whose terms required all its income to be distributed annually. SSCF argued that, as Greystone Fund was fiscally transparent for Canadian tax purpose, SSCF could by virtue of Art. IV(6) (which allowed it to look through fiscally-transparent Canadian entities) access its exemption on US-source dividend income pursuant to Art. XXI(1).

In rejecting SSCF’s position, Hertling J first noted that “Canadian unit trusts were not recognized by the signatories at the time the Fifth Protocol was negotiated and adopted as a fiscally transparent entity,” and then concluded:

Together, the Tax Treaty text and the relevant extrinsic evidence reflect a deliberate allocation of treaty benefits: the signatories expanded Article XXI(3) to allow charitable organizations to benefit from investing in pooled-investment vehicles, but only when the vehicle is restricted to tax-exempt organizations. Allowing charities to benefit from Article IV(6) and evade that restriction is inconsistent with Article XXI(3). At the same time, the signatories adopted Article IV(6) but expressly limited its application in Canada to Partnerships and bare trusts. SSCF cannot rely on Article IV(6) to avoid U.S. taxation of its U.S.-source dividend income. Rather, Article XXI(3) governs the treatment of SSCF’s U.S.-source income through the Greystone Fund. Because the Greystone Fund is not limited to tax-exempt organizations, its income does not qualify for the favorable tax treatment in Article XXI(1).

Neal Armstrong. Summary of The South Saskatchewan Community Foundation Inc. v. US (US Ct of Federal Claims, August 25, 2026) under Treaties – Income Tax Conventions – Art. 21.