The BBB will Affect Canadian Investment Taxation

[Stasher]

Reading a weekly blog I follow this morning and it appears in Trump's BBB (Big Beautiful Bill), there is provisions changing taxation on Canadian companies/investors. Now this won't personally affect me as I divested all my index funds out of the US when Trump was inaugurated (yup no XAW or VCN etc). Anyhow, does anyone know more on this as it might affect a bit of your decision making process. Seems to also have a significant impact on those who do Norbits Gambit as well.

“On Thursday, the U.S. House of Representatives passed the Republican legislation, titled the One, Big, Beautiful Bill, with a narrow vote of 215-214. If it becomes law, it will override the Canadian-U.S. tax treaty that has been in place since 1942.

The 1,100-page document includes section 899, a tax proposal created as a retaliatory measure against what the U.S calls “discriminatory or unfair taxes” of foreign countries, including Canada’s digital services tax (DST), which was introduced in 2024.

The U.S legislation is still required to be passed by the Senate and receive presidential approval before it can become law. The White House expects the President to sign the final bill by July 4.

Canadian corporations that receive dividends from U.S. subsidiaries are currently subject to a 5-per-cent withholding rate under the tax treaty between the U.S. and Canada, much lower than the statutory rate of 30 per cent.

But under section 899, Canadian companies would see their tax rate increase by five percentage points each year until it reaches 20 percentage points above the statutory rate, or 50 per cent. It would remain in place until the “unfair tax” is removed.

Similarly, Canadian individuals who own U.S. securities directly are subject to a 15-per-cent withholding tax rate under the current treaty, reduced from the statutory rate of 30 per cent. Under section 899, the withholding rate could ultimately rise to 50 per cent.”

[okits]

Interesting.  Sounds bad at first glance. 

But the return on my U.S. ETFs has mostly been capital appreciation, not dividends.  I'd be curious to see what the cost of this change ultimately is, in dollars. 

Wonder if the CRA's treatment of those dividends will change (bigger tax credit on foreign income?) to reduce double taxation. 

[FIRE Artist]

Interesting.  Sounds bad at first glance. 

But the return on my U.S. ETFs has mostly been capital appreciation, not dividends.  I'd be curious to see what the cost of this change ultimately is, in dollars. 

Wonder if the CRA's treatment of those dividends will change (bigger tax credit on foreign income?) to reduce double taxation.

This is my assumption that in taxable accounts it will just be a larger foreign tax credit. I also assume that the same tax treaty will exist for the RRSP. I currently hold VXC in my TFSA, even though there is no tax advantage, but I am considering switching things up, getting out of that, but I need to understand some more of what exactly is going on. Like are all vanguard products going to be taxed because Vanguard is American based?  Or just the US portion of the investments. 

Trump wants US banks to get a share of the Canadian market, it seems dumb to make US based financial products less competitive.

Ultimately though, it is only the TFSA I am currently concerned about. I think the best strategy is to hold an international etf, that doesn’t include the US, and then make that up by adding a US only fund in my RRSP. I likely should have been doing this all along, but my TFSA is relatively small, and I like to keep my portfolio simple with a three fund solution - VAB, VCN, VXC.

[Retire-Canada]

If there is a long term negative change to the way US dividends are taxed for Canadians and other foreign investors the investment companies will react. I could see a US based Vanguard Total Stick Fund that automatically reinvests dividends and pays taxes in the US. Then a Vanguard Canada wrapper fund that holds that US fund and trades on the TSX in CAD. The wrapper would just see price appreciation and not receive any dividends.

There are smart folks at the main investment companies that will all be thinking about how to provide an attractive investment product to the Canadian market so they'll come up with whatever makes the most sense give how the law is actually implemented.

This all hinges on Trump actually following through with something effectively over a long period of time. Something he is not known for. Nobody will be shocked if absolutely nothing happens and this was all just talk.

[GuitarStv]

This all hinges on Trump actually following through with something effectively over a long period of time. Something he is not known for. Nobody will be shocked if absolutely nothing happens and this was all just talk.

Yep.  That's the problem with the US government under Trump - they're so full of shit it's hard to tell the lies from the truth.  But they also like making other people miserable, so may just implement this for the lulz.  Who knows?  Certainly not the senile orange bastard in charge.