As Trump upends tax treaties, advisor says 'now's the time' to talk to clients

Because decisions in Washington hadn’t been giving Canadian advisors enough headaches this year, proposals in the new “One Big Beautiful Bill Act” could see tax treaties upended, potentially costing Canadian investors more than $81 billion in additional taxes over the next seven years. The bill, which had passed Congress by a single vote and is now before the US Senate, includes a section meant to counteract supposedly “discriminatory or unfair taxes” imposed by foreign companies.

That includes a Canadian digital services tax (DST), which could be cited as a reason to override the Canada-US tax treaty and significantly increase withholding tax rates for Canadian corporations and individuals. Current withholding tax rates — five per cent for corporations and 15 per cent for individuals — could rise by five per cent each year and cap out at 50 per cent.

For Shiraz Ahmed, the challenges posed by this bill are enough for advisors to start talking with their clients and their clients’ accountants. The Senior Financial Advisor & Senior Portfolio Manager of the Sartorial Wealth Team at Raymond James, firmly believes that tax should not drive investment strategy. However, the potential for increased taxes on US dividends, equity growth, corporate holdings, and almost any other for of investment return, is enough for advisors to start taking action.

“The bigger the problem, the more you should be on top of it,” Ahmed says. “I would encourage everyone not to wait until they’re scrambling. Whatever they can do today to see what can be done to mitigate some of this potential burden on a go-forward basis. This gives you an opportunity to at least reevaluate your current circumstances, and I would encourage everybody to get that right away.”

Ahmed specializes in cross-border service and holds dual registrations with both CIRO in Canada and FINRA in the US. Despite his expertise, he encourages all advisors to stay in their lanes as they work to address these issues. He notes that he is not himself a CPA, and emphasizes the importance of working with clients and their accountants to ensure the impacts of this bill on each client are clearly understood and planned for.

This bill, Ahmed explains, could “significantly impact” profitability of investment returns on US assets. Corporate structures and individual holdings are both potentially impacted by this bill and some of the tax increases could be enough to outweigh returns on certain assets. He does not, however, believe that Canadian divestment from the US should be the response. These tax considerations should be incorporated into a wider asset allocation strategy.

While the US market will retain its attractive quality for many investors, Ahmed expects these changes to prompt a degree of ‘elbows up’ response from Canadian investors. They may begin to shift money back to Canadian assets or to other geographies, which could open wider opportunities for savvy asset allocators.

He notes that while there may be some attractive opportunities outside of US assets, the United States remains the leader in a number of key sectors. Investing in some of those sectors means investing in the US, and that return potential could still outweigh the larger tax burden that could come with the passage of this bill.

While the bill is not yet passed, and some have speculated that Canada might adapt its taxes on US corporations in response, Ahmed highlighted the relatively broad-based nature of the proposed legislation. He likens it to the US tariff policy, which has shifted from targeting Canada specifically to a global approach that insists other countries pay their alleged “fair share.”

In addition to the personal and corporate tax implications of this bill, it could also impact the amount of tax paid on US assets by major Canadian institutions. That includes the CPP and other pension funds that many clients rely on to support their retirement. Ahmed notes that many of these funds operate as something of a ‘black box’ for advisors. Nevertheless, this may be a moment for clients to open up a conversation with their pension administrator about potential impacts to their benefits.

While many of the considerations and changes brought on by this bill require a CPA and a host of other experts to untangle, Ahmed highlights the role advisors can play as financial quarterbacks here, opening conversations that need to be had relatively urgently.

“We’ve been having more conversations with our client families and their CPAs, to give us a bit of a ‘state of the union’ about what we think could be happening and how we can do some advanced planning,” Ahmed says. “When policy changes and we have to understand what the ramifications are, we can lean on external partners. I would highly encourage folks, if they’re not already doing that, to start.”