Correct, just like in the US, domestic routes can only be served by domestic carriers in Canada.

But as for 5th freedoms, perhaps QF isn't allowed on the domestic segment of their flight to Australia. And I can't think of any purely domestic US tag legs, but know of some Canada-US legs that are/were allowed. BA for example used to be allowed to sell the YYZ - JFK segment of YYZ-JFK-MAN. I believe LY sold LAX-YYZ when that flight stopped on the way to TLV (not anymore). And not sure if they do anymore, but I think JL did YVR-LAS, and Phillipines did YVR-MEX (I may have mixed those last two up). CX still sells JFK-YVR on their flight that continues into HKG. I know AC applied/tried to do YYZ-LAX-SYD, while selling the LAX-SYD portion, but was denied by the DOT. But in the rest of the world, it's common enough. There are a ton of international carriers serving routes like SIN-BKK and CMB-MLE, for example.

As to the OP, really wouldn't work unless both countries allowed it, but still don't know if it would make sense. Especially as you lay it out. For example, both the US and Canada would have to change laws to have a sterile transit as you suggest like there is in Europe/Asia, etc. as both countries have laws requiring each pax to pass through immigration - even if simply doing an international transit.

As for WN being interested, I'm not sure that there is even much interest in them serving Canada, much less selling domestic Canada routings via a US hub. It certainly comes up every few years, but operating in Canada doesn't really fit in a LCC model since costs to operate out of Canadian airports are quite high and would likely cannibalize a lot of the business Canadians already provide at border airports like SEA and BUF.