As the U.S. continues to grapple with fiscal pressures, the Trump administration’s sweeping tax and spending package, dubbed the “One Big Beautiful Bill Act,” has cleared the House of Representatives and now faces Senate scrutiny.
Among the most consequential measures for Canadians: a new excise tax on outbound money transfers by non-U.S. citizens and a sharp increase in tax on U.S.-source income.
International Money Transfer Tax
The bill proposes a 3.5% excise tax on money transfers sent abroad by non-U.S. citizens or non-U.S. nationals. Scheduled to take effect in 2026, the measure could impact clients living in the U.S. with cross-border ties, particularly those planning to retire in Canada and draw from U.S.-based accounts.
While U.S. citizens, green card holders, and work visa holders may be eligible for a refundable credit, others may face new planning challenges. There are limited carve-outs, such as exemptions for employers transferring wages to non-U.S. bank accounts, but it’s going to be prudent to explore potential strategies, including early repatriation of U.S. assets where appropriate, but much remains uncertain as the bill makes its way through the Senate.
Increased Tax Rates for U.S.-source Income
Under Section 899, the U.S. aims to penalize countries it deems to have “unfair” tax practices, such as digital services taxes or global minimum tax rules. If passed, the bill would raise withholding tax rates on U.S.-source income for Canadian residents, including dividends, interest, royalties, rent, and capital gains from U.S. real property. These increases could affect Canadian individuals, businesses, investment funds, trusts, private foundations, and even the Canadian government. U.S. citizens living in Canada would not be impacted.
The proposed increase is substantial: tax rates could rise by five percentage points annually, capped at 20 percentage points above existing statutory rates. This would directly affect Canadian investors in U.S. equities and cross-border corporate structures.
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Another concern is that Canada may not increase its foreign tax credit to match the higher U.S. tax, which would leave Canadian taxpayers with unrelieved double taxation. This is especially relevant for large IRA distributions received by Canadians, which may be taxed without offsetting credits. Even registered accounts like RRSPs — currently exempt from U.S. withholding on dividends — could lose their protection under the proposal. If enacted, these rate hikes could apply to Canada as soon as 90 days after the law takes effect.
BOTTOM LINE
These proposed U.S. tax changes could materially impact cross-border portfolios and income planning. This is a big deal: tax treaties are being overridden. Moreover, third-party withholding agents may end up erring on the side of caution by withholding at the new rates until more clarity is provided.
At SANDSTONE, we are monitoring the bill closely and will continue to provide clients with timely, personalized guidance as more details emerge. For now, it is prudent to assess U.S. exposure, review the timing of cross-border transactions, and remain alert to further developments should the measure become law.
Contact us if you would like to talk to one of our wealth professionals about your cross-border financial picture.