On Wednesday, May 21, 2025, U.S. President Donald Trump’s Republican Party passed the “One Big Beautiful Bill” Act with a vote of 215 to 214. The legislation contains extensive tax provisions to implement Trump’s taxation and spending priorities.
Now in the Senate, the Republican Party is expected to make changes to the legislation, which is anticipated to be approved and signed into law by July 4, 2025. The bill includes significant taxation measures targeting “discriminatory foreign countries” that impose taxes on American businesses and services.
What does this mean for Canadians?
The act poses a threat to Canadian businesses and investors in U.S. securities and will override the Canada–U.S. tax treaty that has been in place since 1942. It allows for an increase in retaliatory tax measures on passive income, property gains, and business profits for foreign investors, which could hit Canadians hard.
Of particular concern is a provision in the U.S. fiscal policy, particularly in section 899, which allows U.S. treasury to impose punitive tax increases of up to 20 percentage points on foreign countries that America deems “discriminatory.”
Canada’s Digital Services Tax
President Trump’s retaliatory tax measures are in part due to Canada’s Digital Services Tax (DST), which was introduced in 2024, and falls under the Republican category of unfair taxation to Americans and their businesses. The Digital Services Tax requires both foreign and domestic large businesses to pay tax on revenue earned from Canadian digital services. The tax applies a rate of 3% on annual revenue exceeding $20 million that is generated from digital services relying on the engagement, data, and content contributions of Canadian users, as well as from various sales or licensing of Canadian user data. Canada Pension Plan
These measures could even potentially impact the Canada Pension Plan and other normally tax-exempt pension funds. The act could increase withholding taxes on income earned by Canadian pension funds, including the Canada Pension Plan, which traditionally benefit from tax exemptions under the Canada–U.S. tax treaty. Higher taxes and administrative burdens may reduce returns for Canadian retirees and complicate cross-border fund management.
The Global Minimum Tax
Canada is pushing for the implementation of the Global Minimum Tax, which empowers countries to impose top-up taxes on the income of large multinational corporation. This regime was introduced by the Organization for Economic Co-operation and Development (OECD) and ensures that large corporations pay a minimum tax rate of 15% on their income. This United States disagrees about its implementation and these matters further underscore the tension between Canada’s pursuit of a fair global tax system versus America’s protectionist stance on foreign tax measures. Although Canada aims to ensure that multinational corporations contribute to the tax base through measures like this, the U.S. maintains that such implementations are discriminatory and harmful to its economic interests.
In Summary
If passed, this act could destabilize international investments and further provoke retaliatory measures between Canada and the United States. Critics argue that it could have a significant impact on Canadian investors and businesses. Canadian business owners with U.S. operations through corporate subsidiaries and other investments could be negatively affected. If the act is passed as it currently stands and Canada is deemed “discriminatory,” the fallout could lead to higher U.S. withholding taxes, increased taxes on pension funds, and disruptions to cross-border investing.