US bill could override tax treaty and cost Canadian investors $81 billion over seven years, warns industry
Canadian investors could face more than $81bn in additional taxes over seven years if the US enacts a sweeping tax bill targeting Canada’s digital services tax (DST), according to the Securities and Investment Management Association.
As reported by The Globe and Mail, the “One, Big, Beautiful Bill” passed the US House of Representatives by a single vote (215-214) and includes section 899, a provision designed to counter what the US calls “discriminatory or unfair taxes” imposed by foreign nations.
Among those is Canada’s DST, introduced in 2024.
The legislation still requires Senate approval and presidential sign-off, with the White House expecting US President Donald Trump to sign it by July 4.
According to Ian Bragg, vice-president of research and statistics at the Securities and Investment Management Association, “these measures would penalize ordinary Canadians saving for retirement, education, or other long-term goals, and create unnecessary uncertainty in the market.”
Bragg stated that the draft legislation could cost Canadian investors more than $81bn in added taxes, prompting calls for the issue to be raised at the highest levels of Canada-US trade dialogue.
The bill threatens to override the Canada-US tax treaty that has been in place since 1942, dramatically raising withholding tax rates for Canadian corporations and individuals earning US income.
Canadian corporations currently benefit from a 5 percent withholding tax on dividends from US subsidiaries.
This would rise by five percentage points each year under section 899 until it reaches 50 percent—20 points above the statutory US rate.
Canadian individuals, who now face a 15 percent withholding tax on US securities, would also see that rate rise to 50 percent if the provision is enacted.
The proposed changes would reverse decades of cross-border tax coordination.
Max Reed, a cross-border tax lawyer and principal at Polaris Tax Counsel, said in a client update that if passed, section 899 would “rupture” the Canada-US tax relationship in a manner similar to how Trump's tariffs disrupted bilateral trade.
Reed added, “Virtually all cross-border planning would be turned on its head.”
The bill would also revoke longstanding tax exemptions for government-related entities, meaning the Canada Pension Plan Investment Board and First Nation communities could be required to pay US taxes.
Ron Nobrega, tax partner at Fasken Martineau DuMoulin LLP, said the proposed tax changes would place Canadian multinationals operating in the US at a disadvantage compared to both US-based competitors and foreign companies not subject to retaliatory provisions.
Nobrega noted, “I would assume that at some point, given the fiscal impact on Canadian companies and their competitiveness in the US marketplace, that Canada will have to move away from the digital services tax, will have to repeal it.”
Kim Moody, founder of Moody Tax Law, also called for the DST to be reconsidered.
He described the US as “creating a big fortress” and said that Canada’s decision to maintain the DST in this context was “ridiculous.”
However, according to Prime Minister Mark Carney’s campaign documents, the federal government “will not surrender on rules that ensure large multinational companies pay a fair and consistent share of the profits they earn in a country.”
Karl Dennis, national leader for KPMG’s US corporate tax team in Canada, said the eventual impact of the bill will depend on final legislative developments.
“It’s important for Canadians with US investments to monitor developments relating to this provision as this bill moves through the legislative process,” he wrote in an email to clients.
In broader terms, the bill enacts many of Trump’s prior policy pledges.
According to Reuters, it extends tax cuts from 2017, eliminates green-energy incentives, and includes new work requirements for Medicaid and food assistance programs.
It also proposes funding for a border wall, increased immigration enforcement, and introduces “Trump accounts” for child savings.
The bill is projected by the Congressional Budget Office to add approximately $3.8tn to the US national debt over the next decade.
