Canadians who hold investments or own real estate in the United States could face significantly higher taxes under a proposed bill from the Trump administration. This potential change could impact not only large investors but also everyday Canadians with retirement savings or property south of the border.
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The proposal, sometimes referred to as the “Big, Beautiful, Bill,” includes various tax amendments. While it doesn’t specifically name Canada, experts express concern that its wording, which targets nations with perceived “unfair” foreign tax regimes, could apply to Canada.
Key Takeaways:
- A proposed US bill could dramatically increase taxes on US-sourced income for non-residents, potentially including Canadians.
- This could affect income from US stocks (dividends), rental properties, and even Canadian pension plans invested in the US.
- The tax rate on such income could potentially rise from the current 15% under the tax treaty to as high as 50% over several years.
- The proposal is seen by some as linked to broader trade and tariff policies, specifically targeting countries like Canada with a digital services tax.
- The bill has not yet passed, and experts advise monitoring developments rather than making hasty investment decisions.
How the Proposed Tax Changes Could Work
If Canada were included under these new tax rules, Canadians receiving income from holdings in the United States would likely see a substantial increase in the amount owed to the US tax authorities.
This includes common forms of investment income such as dividends from US stocks. Many Canadian retirement portfolios hold US equities, and the dividends paid by these companies are a regular source of income.
A dividend is a distribution of a portion of a company’s earnings paid to its shareholders. For example, if a Canadian investor holds shares in a US company like Apple that pays a quarterly dividend, this payment is considered US-sourced income.
Under the current Canada-US tax treaty, dividends paid to Canadians are typically taxed at a rate of 15% by the US. However, the proposed bill suggests increasing this rate by 5% each year starting in January 2026, potentially reaching a maximum of 50% over seven years.
Image of Donald Trump speaking, potentially referencing trade or tech policies
Beyond dividends, other types of US income received by Canadians could also face these higher tax rates. This includes income from real estate investments.
Impact on Property Owners and Businesses
Canadians who own rental properties in the United States could see the income generated from tenant rent subjected to these potential tax increases.
“Basically all U.S. taxes paid by foreigners are going up five per cent a year,” notes cross-border tax lawyer Max Reed at Polaris Tax Council.
The impact isn’t limited to individual investors or property owners. Canadian businesses operating in the United States, especially large multinational corporations with US subsidiaries, could also be significantly affected by these proposed amendments.
Furthermore, Canadian pension plans, such as the Canada Pension Plan (CPP) and various provincial or private pension funds, which invest heavily in the US market, could lose their current US tax exemptions on certain income. This could introduce new tax exposures for these large funds, potentially impacting the returns that ultimately benefit Canadian retirees.
Thumbnail image showing a scene likely involving Canadians in the US, potentially related to travel or cross-border issues
The Motivation Behind the Proposal
The proposed tax changes appear linked to the administration’s broader economic and trade philosophy, which has included the use of tariffs.
Max Reed suggests the tax proposal shares the same “ideology” as the tariff policies. While tariffs can sometimes be subject to negotiation, Reed believes these tax changes, if passed, might be more likely to “stick” because their impact is a “slow burn” rather than immediate and drastic.
The US justification, according to Reed, stems from the bill’s language targeting foreign countries that impose forms of digital services tax on US companies. Canada currently has a digital services tax requiring large foreign tech companies to pay a percentage of certain revenue earned from Canadian users.
What Canadian Investors Should Do Now
News of potential tax increases can understandably cause concern for Canadians with US investments or property. However, cross-border investment adviser Joe Macek at IA Private Wealth advises against making rushed decisions.
“Panic buying and panic selling I don’t think has ever served any investor well,” Macek states.
The crucial point is that the bill is currently just a proposal and has not been passed into law.
“Right now, the bill has not passed. So the short answer is: do nothing, and stay patient,” Macek concludes. The best approach for now is to monitor the situation closely and understand how the legislation progresses.
