Trump’s “Big Beautiful Bill” Is Anything but Beautiful for Canadians

The “One Big Beautiful Bill Act” — yes, that’s the real name — is Donald Trump’s latest fiscal proposal, and it’s already making headlines. It promises sweeping tax cuts, major spending, and, in true Trumpian fashion, controversy. While the bill may aim to “Make America Great Again (Again),” it’s anything but great for Canadians.

Although the bill has yet to become law, it’s sparking international concern and potentially setting the stage for a major shift in cross-border taxation.

What’s in the Bill?

The proposed legislation combines several high-impact measures:

• An extension of Trump’s 2017 tax cuts
• An increase to the U.S. debt ceiling
• Significant new spending on border security and the military

Estimates peg the cost at $3–$5 trillion in added deficits over the next decade. Austerity, it seems, is out — tax cuts and deficit-financed spending are back. The bond market, ever pragmatic, is not impressed. U.S. Treasury yields have risen in recent weeks as investors price in bigger deficits and increased debt issuance. Global capital markets may be starting to question America’s fiscal credibility.

To put it in perspective: as of 2024, the U.S. now spends more on interest payments than on national defense — a staggering and deeply concerning milestone.

Section 899: A Revenue Tool with Global Implications

One of the most controversial parts of the bill is Section 899, which is projected to raise $100 billion in revenue over the next decade. The provision is designed to retaliate against countries that impose taxes viewed as discriminatory toward U.S. companies, such as the OECD’s Undertaxed Profits Rule (UTPR), Digital Services Taxes (DSTs), and Diverted Profits Taxes (DPTs). In essence, it functions as a “revenge tax”, aiming to shift leverage back to the U.S. by using withholding taxes as a policy tool.

Under current tax treaties, including the U.S.-Canada Tax Treaty, withholding taxes on dividends are capped at 15%. Section 899 proposes to override those limits, increasing withholding by 5% annually, up to a maximum of 50% within seven years, for designated “non-cooperative” countries.

Why this matters for Canadians:

• Canadian investors could face higher tax costs on U.S. income. It's unclear whether Canada would allow a foreign tax credit for withholding above the treaty rate. If not, some investors could face a higher effective tax burden. If Canada did allow a higher foreign tax credit, significant tax revenue would shift from Ottawa to Washington.
• RRSPs and other registered accounts, which are currently exempt from U.S. withholding, could lose their protection, reducing long-term retirement savings and compounding tax drag.
• Canadian companies with U.S. operations may experience increased tax friction on cross-border income, reducing after-tax profitability.
• Tax-exempt entities such as the Canada Pension Plan (CPP) could be affected if Section 899 applies to them — a potentially broad and concerning impact.

As Deutsche Bank strategist George Saravelos put it:

“Section 899 challenges the open nature of U.S. capital markets… by using taxation as leverage to further U.S. economic goals.”

This isn’t just a tax policy tweak, it’s a geopolitical maneuver with real financial consequences.

What Should Canadian Investors Know?

While Trump’s “Big Beautiful Bill” may resonate politically in the U.S., for Canadians, it introduces a number of important considerations. From potential tax treaty overrides to increased withholding taxes and risks to retirement accounts and public pensions, the cross-border implications could be significant.

That said, much remains uncertain. The bill has only narrowly passed the U.S. House of Representatives and must still clear the Senate by July 4, 2025, a process that allows for amendments or even failure to pass. As we saw with Canada’s capital gains tax proposal in 2024, not every policy makes it into law.

Canada may also be able to negotiate concessions, for example, repealing its digital services tax (DST), in exchange for exemption from the most punitive measures. And with a five-year phase-in period, a future U.S. administration could easily take a different approach.

Investment Outlook: Stay the Course, Stay Informed

If foreign investors begin to feel disadvantaged by U.S. policy shifts, some may gradually rebalance their exposure. Markets such as Europe, Japan, Canada, and emerging economies could start to attract more attention. While a sudden pullback is unlikely, a sustained change in sentiment could lead to higher U.S. borrowing costs and increased global market volatility.

For Canadian investors with U.S. exposure, the best approach is to stay informed and monitor developments closely. Maintaining a disciplined, long-term investment strategy remains the most effective course in times of policy uncertainty.

Interested in Learning More?

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