Trump’s ‘big, beautiful’ tax reform bill could cost Canadians billions
The potential implications of a small provision buried within U.S. President Donald Trump’s massive One Big Beautiful Bill Act could have far-reaching consequences for Canadians and Canadian companies. This provision, known as Section 899, could result in billions of dollars in additional withholding taxes on income received from investments in U.S. securities for Canadians, Canadian companies, and pension plans.
The provision, which is part of a comprehensive bill aimed at fulfilling Trump’s domestic campaign promises, has raised concerns among Canadian experts. David Macdonald, a senior economist with the Canadian Centre for Policy Alternatives, described Section 899 as a “nuclear option” that could disrupt the longstanding tax treaty between Canada and the U.S. If approved by the Senate, this provision could force Canada to choose between scrapping its digital services tax (DST) or facing increased withholding taxes imposed by the U.S.
The DST, which applies to large businesses earning revenue from certain online business models in Canada, has drawn criticism from the U.S. government. This, coupled with global minimum tax measures adopted by Canada, puts the country in the crosshairs of the Trump administration. If designated as a country with discriminatory taxes, Canada could face a new withholding tax starting at five percent and escalating to a maximum of 20 percent.
Experts believe that the potential impact of Section 899 could be significant, possibly reaching into the billions of dollars. Kim Moody, founder of Moodys Private Client and Moodys Tax, warned of “absolute chaos” if the provision is allowed to take hold. The specific application of the tax remains unclear, leading to concerns about its impact on various types of investments, including securities held within registered accounts like RRSPs.
Finance Minister François-Philippe Champagne’s office declined to comment on the potential implications of the U.S. tax reform bill, stating that analysis is ongoing. The U.S. embassy also refrained from commenting on Section 899, as the legislation is still pending final approval.
The Canadian Chamber of Commerce has expressed concerns about the potential cost of Section 899 outweighing the revenue collected from the DST. They urge the Canadian government to consider eliminating the tax in negotiations with the U.S. to avoid adverse consequences for Canadian businesses and investors.
Overall, the proposed withholding tax could have far-reaching impacts on Canadian companies, investors, and pension plans. It may also have broader implications for Canadian tax policies aimed at leveling the playing field between American transnationals and Canadian domestic companies. As the situation unfolds, Canadians are left to navigate the uncertain landscape of potential tax changes that could significantly impact their financial well-being.
