Posted By BDO Canada’s Jason Ubeika was a guest on Darren Coleman’s Two Way Traffic podcast to discuss Trump’s Big Beautiful Bill.
By Jason Ubeika, BDO Canada LLP
Special to Financial Independence Hub
U.S. President Donald Trump signed the One Big Beautiful Bill Act into law on July 4. It involves a staggering US$4.5 trillion in tax cuts over the next decade and focuses on his tax agenda: the idea being to boost jobs, incentives and business investments south of the border.
The bill extends legislative changes from Trump’s first term and introduces some new provisions that offer both favorable and unfavourable changes for individual taxpayers. Key provisions that could impact Canadians are:
- permanent increase to the estate and gift tax exemption;
- changes to controlled foreign corporation rules;
- a new 1% excise tax on remittance transfers to persons outside the U.S.;
- introduction of Trump accounts for savings for qualifying children; and
- various changes to income tax rates, deductions and credits.
Thankfully, the originally proposed new Section 899 was removed from the final version of the bill. It would have imposed retaliatory U.S. taxes on residents of countries imposing “unfair foreign taxes,” and could have raised U.S. withholding taxes and income taxes on a variety of types of U.S. source income received by Canadians.
Estate and gift tax exemption
The bill will increase the harmonized estate tax exemption and lifetime gift tax exemption amount for U.S. citizens and resident aliens to US $15 million in 2026, indexed annually to inflation. Unlike past legislation, there is no “sunset clause” where the legislation is scheduled to expire on a certain date and the exemption reverts to the previously legislated amount. The current harmonized exemption for 2025 is just under US$14 million and was supposed to decrease by half in 2026 to slightly over US$7 million.
What are the implications for Canadians? Canadians are generally subject to U.S. estate tax upon death, based on the fair market value of U.S. situs assets; this includes U.S. real estate and shares of U.S. corporations held at death: even U.S. marketable securities held in a Canadian brokerage account. However, Canadian residents have access to the same estate tax exemption as U.S. individuals by virtue of the Canada-U.S. tax treaty. As a result, Canadians are generally not subject to U.S. estate tax on death if their worldwide net worth is below the exemption amount in effect at the time of death. The exemption is effectively at least doubled if assets pass to a surviving U.S. noncitizen spouse. No sunset clause means Canadians will face less uncertainty with respect to U.S. estate tax planning.
Canadians are generally subject to U.S. gift tax based on the fair market value of tangible U.S. situs assets (e.g. U.S. real estate) that they gift during their lifetime. Unlike for estate tax, the treaty does not provide an enhanced gift tax exemption, and annual exemptions under U.S. domestic tax law are limited. For 2025, the annual taxable gift exclusion is US$19,000 per recipient (US$190,000 for gifts to a U.S. noncitizen spouse). Gifts above these annual exclusion amounts are subject to gift tax at graduated rates ranging from 18% to 40%.
Controlled foreign corporation (CFC) rules
A CFC is generally a non-U.S. corporation where more than 50% of the stock (based on aggregate voting power or value) is owned by U.S. shareholders. A U.S. shareholder is a U.S. taxpayer who owns shares representing at least 10% of the votes or value of all stock of the corporation. Such shares can be owned directly or indirectly: even constructively, based on shares owned by certain related parties.
Under the bill, U.S. shareholders of CFCs became subject to tax on global intangible low-taxed income (GILTI) in 2018, even if the income was not distributed to the U.S. shareholder. Conceptually, this represents the after-tax active business income of a CFC. The bill renames GILTI as net CFC tested income (NCTI). Prior to the bill, U.S. shareholders of CFCs were only subject to accrual-based taxation of subpart F income, which conceptually represents non-business income of a CFC.
As for favourable and unfavorable changes to the NCTI calculations, effective in 2026, the bill:
- repeals the reduction of NCTI for the deemed return on qualified business asset investment,
- reduces the Section 250 deduction from 50% of NCTI to 40%,
- limits foreign tax credits to 10% of NCTI instead of 20%,
- limits expenses allocable to NCTI to the section 250 deduction and directly allocable expenses, and
- renders interest expenses and research and experimentation expenses not allocable to foreign-source NCTI.
Other changes to the CFC rules include:
- permanent extension of the look-through rule for CFCs, where dividends, interest, rents and royalties received or accrued from another CFC are not taxed under the subpart F rules;
- modifying pro rata share rules for subpart F income to apply to U.S. shareholders owning the CFC at any point during the year, rather than at the end of the year;
- restoring the limitation on downward attribution of stock ownership; and
- introducing Section 951B to apply the NCTI and subpart F rules beyond U.S. shareholders of CFCs, such that they apply to structures including foreign controlled U.S. shareholders and foreign controlled foreign corporations.
Implications for Canadians
What then are the implications for Canadians? The CFC rules apply to Canadian residents who are U.S. persons (i.e. U.S. citizens or Green Card holders) and who directly, indirectly or constructively own shares representing more than 50% of the total votes or value of Canadian private companies and other non-U.S. private companies.
The net effect of the changes to the Section 250 deduction and the foreign tax credit limitation are that the minimum effective foreign corporate tax rate necessary to be paid by a CFC to fully offset U.S. tax on NCTI increases from 13.125% to 14% for a U.S. corporate shareholder of a CFC, which is taxed at 21%. A U.S. individual shareholder can make an election under Section 962 to be taxed as a U.S. corporation for the purposes of the CFC rules. For Canadian CFCs generating NCTI, the Canadian corporate tax may not meet this threshold, particularly if the small business deduction is claimed.
Excise tax on remittance transfers
Effective in 2026, the bill requires that a new 1% excise tax on certain remittance transfers be collected by the remittance transfer provider and paid quarterly to the U.S. Treasury. The tax imposed will apply only to any remittance transfer for which the sender provides cash, a money order, a cashier’s check, or any other similar physical instrument through a remittance transfer provider to an account outside the U.S.
Implications for Canadians? Although the original scope of the provision appears quite broad, in light of the exceptions provided in the final legislation, it’s been narrowed. Routine transfers of funds from U.S. financial institutions to Canadian financial institutions should avoid being subject to the tax; it appears this provision targets transfers funded by the underground economy.
Trump accounts
The bill established a new type of savings account defined with reference to the rules for individual retirement accounts (IRAs). Trump accounts are available starting in 2026 for qualifying children under age 18 with Social Security Numbers. Contributions are limited to US$5,000 annually (indexed annually for inflation) and are not deductible. Children who are U.S. citizens born in 2025 through 2028 are eligible for an initial government-funded contribution of US$1,000. Withdrawals are permitted starting the year the account beneficiary turns 18. Amounts contributed to the account by the person establishing the plan or the government are not taxable upon withdrawal.
While the Canada Revenue Agency (CRA) has not yet issued any specific guidance regarding Canadian tax consequences of Trump accounts, Trump accounts are not expected to be accorded special preferential tax treatment for Canadian tax purposes. Canadian taxation would likely arise for the plan contributor when the income is generated within the Trump account due to income attribution rules, rather than being deferred and taxed in the beneficiary’s hands upon withdrawal. This may give rise to double taxation. Consideration should be given to having a non-resident of Canada make the contributions to the account. In addition, one should consider whether government contributions are deemed subject to Canadian tax, either upon receipt within the account or upon eventual withdrawal.
Trump accounts would likely be considered subject to annual information reporting on Canadian Form T1135 (Foreign Income Verification Statement), if one’s aggregate foreign investments have cost of over $100,000 (Canadian dollars) at any point during the year.
Changes to tax rates, deductions and credits
A sampling of the numerous provisions affecting tax calculations for individuals are:
- Top-bracket income tax rate of 37% of for individuals, estates, and trusts made permanent.
- Maximum state and local tax itemized deduction increased from $10,000 to $40,000 for 2025 (subject to phaseout based on income levels), to be increased by 1% annually thereafter, and to revert to $10,000 in 2030.
- Past elimination of certain deductions made permanent, such as personal exemptions, miscellaneous itemized deductions (including unreimbursed employment expenses, tax preparation fees, and investment expenses), mortgage interest relating to home equity indebtedness, and moving expenses.
- Deductions for gambling losses limited to 90% of losses (and to the extent of gambling winnings) starting in 2026.
- Increase in the child tax credit for 2025 to $2,200 per qualifying child, indexed annually for inflation, $1,400 U.S. refundable portion thereof remains the same.
- New $6,000 deduction for seniors for the years 2025 through 2028, subject to phaseout based on income levels.
These provisions affect U.S. taxpayers who are Canadian residents subject to Canadian income tax on their worldwide income. They will generally pay the higher of the U.S. or Canadian income tax on any income also subject to U.S. tax. Since average Canadian tax rates on most types of income tend to exceed average U.S. tax rates on that income, any increases or decreases in U.S. tax may not influence their overall tax burden, just the split thereof between the U.S. and Canada. Having said that, it’s possible these changes will result in ultimate tax costs or savings for some Canadians subject to U.S. income taxes.
For more details and information regarding these changes and other changes encompassed by this bill, I suggest you contact our office.
Jason Ubeika is a Partner with BDO Canada and the US Personal Tax Practice Leader in Canada. Jason joined BDO Canada in 1993. Since 2003, he has specialized in Canada-U.S. cross-border taxation, including tax compliance and related planning and advisory services. His primary focus is the cross-border taxation of individuals and trusts, with a particular focus on U.S. taxation services for private clients. Jason was recently a guest on Darren Coleman’s podcast Two Way Traffic to talk about Trump’s Big Beautiful Bill and the impact on Canadians.
