I wanted to bring a development to your attention around the U.S. dividend-paying stocks you hold.
Recently, the U.S. government has been considering a new provision under Section 899 of the proposed U.S. budget bill—a measure sometimes referred to as Trump’s "Big Beautiful Bill." This provision could lead to an increase in the withholding tax on U.S. dividends received by Canadian investors—not on capital gains or interest.
Currently, under the Canada-U.S. tax treaty, the withholding tax is 15%. However, this new measure could increase that rate by 5% annually, potentially reaching up to 50% in the coming years.
The rationale behind this provision appears to be a tit-for-tat response by the U.S. to certain Canadian tax policies, such as Canada’s Digital Services Tax, implemented in 2023. As of June 17th, the bill has not yet been signed into law.
If enacted, this change would mean a higher portion of your U.S. dividends would be withheld as tax. Please keep reading….
What are the implications?
If the foundational aspects of the tax treaty remain intact, the heightened withholding tax shouldn’t have a material impact on most investors.
For the past few decades, the Tax Treaty has stipulated that:
- Withholding tax is not imposed on retirement accounts like RRSPs and RRIFs; therefore, these accounts are exempt.
- Canadians can use the tax withheld by the U.S. in their non-registered accounts as a credit against their Canadian taxes, reducing their overall tax liability dollar-for-dollar.
- The rules are less favorable for TFSAs and RESPs, as they are subjected to U.S. withholding tax, that cannot be recovered as a credit against Canadian taxes.
If these principles remain unchanged, most retail investors like us are likely to experience minimal impact, possibly requiring only minor adjustments to our TFSA and RESP accounts. But I won’t let hubris fool me – things could change or there could be peripheral effects that aren't apparent at this moment.
I am closely monitoring this situation and will keep you updated on any further developments. In the meantime, if you have questions or would like to discuss how this might affect your portfolio, please don’t hesitate to reach out.
Thank you for your continued trust and partnership.
As always let me know if you have any questions.
Bryan Deviney
Senior Financial Advisor
Assante Capital Management Ltd.
4211 Yonge Street, Suite 222, Toronto, Ontario, M2P 2A9
W: 416.216.6500 | F: 416.216.6512
www.bryandeviney.com
The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. This material is provided for general information and the opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on the information presented, please seek professional financial advice based on your personal circumstances. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
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