How Trump’s ‘big beautiful bill’ could become a big headache for corporate Canada and investors

U.S. Speaker of the House Mike Johnson speaks to the media after the House narrowly passed the tax and spending legislation, called the “One, Big, Beautiful Bill” Act last week. The bill now goes on to the Senate. Photo by Kevin Dietsch/Getty Images

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A wide-ranging tax bill — dubbed the “big, beautiful bill” by U.S. President Donald Trump — could upend decades of favourable U.S. tax treatment enjoyed by Canada’s largest companies and pension funds, if it is passed by the U.S. Senate in its current form.

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The bill was passed by the House of Representatives on Thursday and contains a section with a series of proposals aimed at retaliating against “unfair” foreign tax regimes.

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Together, the proposals threaten to override established tax treaties and shake Canada’s cross-border investment flow, according to tax lawyers. If it becomes law, Canadian funds and multinationals that do business in the U.S. could face new or higher taxes as soon as January 2026. Proposals within the bill also take aim at individuals who earn money from U.S. sources.

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The bill does not name targeted countries but Canada could be included in the sweeping tax retaliation in response to the digital services tax, a levy imposed on large foreign technology companies that do business with Canadians despite having limited physical presence in the country, said Jack Mintz, a senior fellow of the C.D. Howe Institute.

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Another possible avenue to target Canada would be through an undertaxed profits rule in the proposal, he said. Canada has signed on to a global corporate minimum tax of 15 per cent, along with many other countries not including the United States.

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The implications are wide-ranging if Canada is targeted, from taxes paid on bank branch profits in the U.S. to withholding taxes for pension and sovereign wealth funds, Mintz said. It would also affect most Canadian companies with U.S. affiliates that have income connected to the U.S., and not just from dividends, interest and royalties, he said.

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The proposals lay out tax increases for five categories of income, starting from the reduced rate available under an applicable treaty, according to lawyers at Chicago-based law firm Mayer Brown. They level up annually by five percentage points for as long as the foreign country is deemed to be discriminatory, up to a cap of 20 percentage points above the statutory rate (not subject to any treaty).

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For example, even if a person or corporation is entitled to a five per cent rate on dividend income, that would increase annually to a cap of 50 per cent.

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While some Republicans opposed Trump’s bill because it will add to the country’s massive debt through reduced revenue from domestic tax cuts that are not fully offset by cuts to Medicaid and other programs, it passed in the House and now heads to the Senate, where Trump has said he wants thing wrapped up by July 4.

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“I think it will be passed in the Senate,” said Max Reed, a cross-border tax lawyer at Polaris Tax Counsel.

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He said some of Trump’s threats will be negotiated to blunt the impact, but he doesn’t think that will be the case with this legislation since it raises money from non-U.S. voters.