What U.S. Tax Retaliation Could Mean for Canadian Investors

Canadian investors with exposure to U.S. markets can breathe a sigh of relief. On July 4, 2025, the U.S. officially signed into law the One Big Beautiful Bill (H.R. 1) without Section 899, a controversial provision that could have sharply increased withholding taxes on Canadian investors.

Background: What Was Section 899?

Section 899 was a retaliatory tax mechanism included in earlier versions of H.R. 1. It targeted countries that imposed what the U.S. deemed “unfair foreign taxes” on American businesses - chief among them, Canada’s Digital Services Tax (DST).

Canada’s DST was first proposed in 2021, legislated in 2024, and scheduled to apply retroactively from January 1, 2022, with first payments due in 2025. It applied a 3% levy on revenues from certain digital services earned in Canada by large global tech firms.

Section 899 would have given the U.S. Treasury authority to impose punitive surtaxes on residents of countries with such taxes - posing serious risks to Canadian investors with U.S. holdings.

What Changed Before July 4

• On June 26, 2025, House Ways and Means Chair Jason Smith and Senate Finance Chair Mike Crapo issued a joint statement confirming that Section 899 had been removed from the final version of the bill.

• On June 30, 2025, Canada formally repealed its DST, just before the first tax payments were due. This move helped de-escalate tensions and removed the main rationale for U.S. retaliation.

Most Important: Section 899 Was Not Included in the Final OBBB

Section 899 was excluded from the final version of the One Big Beautiful Bill signed into law on July 4. As a result, none of its proposed tax measures - such as increased withholding taxes on Canadian individuals, corporations, pensions, and trusts - were enacted.

Implications for Canadian Investors

• Section 899 is not part of U.S. law and carries no legal effect.

• The Canada–U.S. tax treaty remains fully in force, protecting lower tax rates on dividends, interest, and other income.

• No new U.S. surtaxes will apply to Canadian investors under current legislation.

Bottom Line

Thanks to a combination of diplomacy, Canada’s repeal of the DST, and strategic legislative decisions, Section 899 was removed before the One Big Beautiful Bill became law. Canadian investors have avoided a potentially significant tax hit.

If you have questions about your U.S. exposure or want to discuss tax-efficient portfolio strategies, please reach out. We’ll continue to monitor these developments closely.