Important Update for Cross-Border Investors: What Section 899 of the “Big Beautiful Bill” Means for You

If you hold U.S. investments a new proposal from Washington could affect your after-tax returns.

The measure? Section 899 of the so-called “Big Beautiful Bill” (officially the One Big Beautiful Bill Act), recently passed the U.S. House of Representatives and is now being considered by the U.S. Senate.

What Is Section 899?

Section 899 introduces a “surtax” on U.S. interest and dividends paid to investors from countries that the U.S. views as imposing unfair or discriminatory taxes on American companies—think digital services taxes (DSTs), minimum tax rules (like Pillar Two), or diverted profits regimes.

Canada is caught in this net as it currently imposes a DST.

How It Works

Section 899 proposes:

• A 5% surtax in year 1, growing by 5% annually up to a cap of 20%
• This surtax is added on top of existing U.S. withholding taxes

So, a Canadian investor who currently pays 15% U.S. withholding tax on dividends, this could rise to:

• 20% in year 1
• 25% in year 2
• 30% in year 3, etc.

This is especially relevant if:

• You hold U.S. dividend-paying stocks in taxable or trust accounts.  Retirement accounts should stay exempt under the U.S. Canada tax treaty unless the Trump administration chooses to override the treaty.
• You’re invested via a Canadian corporation, holding company, or family trust
• You are a foreign trust beneficiary, or
• You receive interest, royalties, or real estate income from U.S. sources

When Could It Take Effect?

The surtax could apply as early as January 1, 2026, depending on:

1. When the bill is passed and signed into law
2. When the foreign country’s “unfair tax” takes effect

Why This Matters to Canadian Investors

• Lower Net Returns: Higher U.S. withholding taxes reduce your take-home yield on dividends and interest
• Treaty Benefits May Be Ignored: Even though Canada has a tax treaty with the U.S., Section 899 overrides treaty rates
• Real Estate Impact: Trusts or holding companies that own U.S. rental property may see lower net income after taxes

What Can You Do?

If you or your business holds U.S. assets, consider the following steps now:

1. Review your cross-border investment exposure
2. Talk to your advisor or accountant about the structure you’re using (e.g., individual vs. trust vs. corporate)
3. Model the impact of an extra 5–20% tax on your U.S. income
4. Consider asset location: TFSAs and personal non-registered accounts will be impacted
5. Stay informed: The bill has not passed the U.S. Senate yet, but the direction is clear

How We Can Help

At Foster & Associates we monitor legislative developments like Section 899 because we know how critical tax drag is to long-term returns. If you’d like a review of how this may affect your U.S. holdings—or help evaluating trusts, holding companies, or estate structures—reach out to your advisor.

Cross-border investing is more complex than ever. We’re here to help you stay ahead.

Disclaimer: This article is for general information purposes only, and is not legal, financial, or tax planning advice.   Everyone’s situation is unique, and this article cannot apply to every person.  The reader should not take any action, or refrain from taking any action, as a result of this article without first obtaining legal or professional advice.