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.
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.
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