The One Big Beautiful Bill Act backed by President Donald Trump and now slithering though the U.S. Congress doesn’t look so beautiful for Canadian investors and business owners. Yet while experts say that its threats are real and investors should stay wary, they should also remain calm.
Of particular concern to investors in U.S. real estate and to others is Section 899 of the proposed law, which the House of Representatives passed in mid-May. That section takes aim at what the Trump-supported bill calls “unfair foreign taxes” by imposing its own retaliatory taxes on non-U.S. business and investment income.
Those new retaliatory provisions would raise taxes over time by five to 20 per cent beyond existing ones paid by Canadians and other non-Americans who own U.S. securities, and by Canadian corporations that receive dividends from U.S. subsidiaries. It could cost Canadian investors $81 billion over seven years, according to Ian Bragg, vice-president of research and statistics at the Securities and Investment Management Association.
The bill got through the House by only one vote, 215-214. But some version of it, including Section 899, is likely to get passed, says Kevyn Nightingale, leader of cross-border tax consulting with the law firm Levy Salis LLP, which has offices in Montreal, Toronto, Florida and Israel.
“The bill as it exists now does have some teeth that would affect Canadian investors,” adds Nightingale. “But it still has to go through a complicated legislative process before any of its measures get applied, and a lot of details can be changed.”
Trump has said he aims to sign the bill into law by July 4. But first, the proposed law must be debated and passed by the Senate, which can change or strike out some of the measures in the document, which runs more than 1,000 pages. Also, before it can be sent to the President, the House and Senate versions must go through a process called reconciliation, so that both chambers approve the exact same bill.
The question now for Canadian investors is to what extent either changing or eliminating Section 899 becomes part of the negotiations and lobbying taking place in Washington as the bill moves toward its final form. As it’s now written, the proposed section takes direct aim at tax reform measures taken both by the Organisation of Economic Co-operation and Development (OECD) and by Canada—measures which are now Canadian law, and which are hated by the Trump administration.
The OECD developed a model rule called Pillar 2, aimed at ensuring that multinational companies pay a minimum tax of 15 per cent. The measure is designed to discourage multinationals from shifting profits to tax havens. Canada adopted its own version of these rules in June 2024.
The other Canadian measure the Trump-backed bill takes aim at is the Digital Services Tax (DST), which imposes a three per cent tax on digital services that rely on content and data from Canadian users.
The Digital Services Tax aims to force companies to pay for Canadian content such as news stories that they allow users to post. It has drawn fierce objections from major multinational media services such as Meta (owner of Facebook), whose opposition to the DST is the reason people can’t post Canadian news stories on Facebook.
If I’m going to set up a business and commit millions or even billions of dollars anywhere, I want some predictability.
Kevyn Nightingale, Levy Salis LLP
Some organizations and experts are hopeful that changes in the U.S. bill are possible as American legislators contemplate the potential harm Section 899 could cause to their own economy.
“This [Section 899] is a market-spooking event, hitting fragile confidence, particularly from foreign investors,” Greg Peters, co-chief investment officer at PGIM Fixed Income, told the Financial Times. Morgan Stanley analysts have said the move “disincentivizes foreign investment” from Canada and elsewhere, and would probably put pressure on the U.S. dollar.
Others are urging Canada to signal that it could get rid of the DST, if only to appease U.S. legislators and Trump in hopes they will remove the revenge tax section. Anthony Quinn, chief operating officer of the Canadian Association of Retired Persons (CARP), has said the DST should be on the table in larger trade negotiations. Dan Kelly, head of the Canadian Federation of Independent Business, has also said it could be a bargaining chip in overall trade negotiations between Canada and the U.S.
Nightingale says it’s important for Canadian negotiators to analyze what’s especially bad about the U.S. tax bill and Section 899 for Canada, and then focus on dealing with these aspects. He especially doesn’t like the way it would give the President discretion to decide whether a country is levying its own “unfair” tax and impose punishment on its investors.
“That discretion scares me,” he says. “It becomes based on the whims of whatever particular person happens to be in power.”
The most important outcome for Canadian investors will be to gain some certainty over what kinds of taxes they would have to pay to the U.S., even if they are higher, he adds.
“If I’m going to set up a business and commit millions or even billions of dollars anywhere, I want some predictability, to know what my taxes are going to be over the next 10 to 20 years,” Nightingale adds. “If I don’t know what my taxes are going to be tomorrow, I’ll refrain from investing.”
Uncertainty about the ultimate effects of the One Big Beautiful Bill on Canadian investments and businesses that operate in the U.S. is certainly a factor for investors to consider, says Ronald Nobrega, partner at Fasken Martineau DuMoulin LLP in Toronto.
But it’s not necessarily the only consideration, he adds.
“Tax risk is always important,” Nobrega explains. “But if you’re buying, say, a shopping mall in the United States and expect to hold it for the long term, and you’re not planning to reap U.S. dividends in the short term, you might decide to go ahead regardless of the risk. There may be other reasons and opportunities to proceed with whatever you were planning to do.”
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