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.

[Out of the Blue]

This is my assumption that in taxable accounts it will just be a larger foreign tax credit.

If Canada considers the US withholding tax to be in breach of the Canada-US Double Tax Treaty (as it seems to be, at first blush) then they are unlikely to grant a foreign tax credit for that US tax.

[Mighty Eyebrows]

This is my assumption that in taxable accounts it will just be a larger foreign tax credit.

If Canada considers the US withholding tax to be in breach of the Canada-US Double Tax Treaty (as it seems to be, at first blush) then they are unlikely to grant a foreign tax credit for that US tax.

Yes, I think this is a significant risk.

[techwiz]

Was just looking to see if anyone is talking about this

The U.S. is proposing a tax surtax of 5% on investors from countries that impose discriminatory taxes on U.S. companies. This surtax is part of a new tax bill, Section 899, which aims to increase taxes on U.S. income by 5 percentage points each year, potentially reaching up to 20%. This legislation is intended to address unfair taxes imposed by foreign countries and could significantly impact U.S. companies and investors from those countries.

https://www.cnbc.com/2025/05/30/us-set-to-weaponize-taxes-on-foreign-investors-via-section-899.html?msockid=08b042b0c5da6c5f285154b1c4096d5e

I assume we will not know until it's it passes the senate etc... and depends on how things roll-out.

I am holding VTI in US$ in both my TFSA and RRSP.  Just holding and wait to see what happens is my current plan.

[techwiz]

The Plain Bagel just released a video on this topic.  Unfortunately still a lot of things up in the air, and he doesn't have a crystal ball or advice what to do, but at least he does a good job explaining section 899 impact on investors if the US "Big Beautiful Bill" passes as is.

https://www.youtube.com/watch?v=tlPBDH2_z60

The main take away I got from this was to wait for more details before doing anything.   

[BrandonP]

The Plain Bagel just released a video on this topic.  Unfortunately still a lot of things up in the air, and he doesn't have a crystal ball or advice what to do, but at least he does a good job explaining section 899 impact on investors if the US "Big Beautiful Bill" passes as is.

https://www.youtube.com/watch?v=tlPBDH2_z60

The main take away I got from this was to wait for more details before doing anything.

Thanks for sharing.

[FIRE Artist]

This is my assumption that in taxable accounts it will just be a larger foreign tax credit.

If Canada considers the US withholding tax to be in breach of the Canada-US Double Tax Treaty (as it seems to be, at first blush) then they are unlikely to grant a foreign tax credit for that US tax.

Yes, I had learned this since my l previous post. I am currently taking no action as I need more information about how this will all play out in the various account types - like will the us continue to observe tax advantages for RRSPs?.  If Carney were smart on this one, he would realize that he needs to recognize this if he wants his middle class to back him on the digital media taxation.

If nothing gives, people like me will be hooped, I have 2/3 of my funds in non registered accounts so I can’t justify the tax hit from changing positions. 

[Stasher]

All of this again to be a wonderful example of why I divested all of my investments out of the US Stock Market after DJT's inauguration and the actions of the MAG7. Better allies to align with in the EU and absolutely keep that digital media tax in place, they need to pay their dues for how much money they extract back to the US from the Canadian economy.