One More Thing: Capital Gains Rates Cancelled
By Bryant Andrus
Profile: The Cross-Border Business Owner
TL;DR
- US tariffs of 25% on Canadian goods (10% on energy and potash; USMCA-qualifying goods exempted from March 7) and Canada’s matching counter-tariffs (two waves, March 4 and 13) reset cost structures for integrated cross-border businesses overnight.
- Transfer pricing between related Canadian and US entities must now reflect the new tariff reality at arm’s length, and entity structures built for frictionless trade deserve a fresh look.
- Pressure on trade-exposed business valuations makes this a strong window for an estate freeze or reorganization, and the March 21 cancellation of the capital gains increase keeps the inclusion rate at 50%.
If your business sells into the US, sources materials from American suppliers, or runs operations on both sides of the border, March 4, 2025 was a date that changed your cost structure overnight. US tariffs of 25% on most Canadian goods (narrowed to non-USMCA goods on March 7) and Canada’s matching retaliation turned business models that made sense last quarter into ones that urgently need review.
The tariffs didn’t arrive without warning, but their scope and speed still caught many cross-border operators off guard. On March 4, Canada imposed 25% counter-tariffs on $30 billion in US goods. A second wave hit March 13, covering an additional $29.8 billion in US steel, aluminum, and consumer products. For businesses with integrated supply chains, this isn’t just a cost issue — it’s a structural one.
What’s Actually at Stake
The immediate pressure is on margins. But the secondary effect — one that most business owners haven’t fully modeled yet — is entity structure. If your cross-border business was built on an assumption of frictionless trade, the entity structure that made sense then may not make sense now. Transfer pricing arrangements between a Canadian parent and a US subsidiary, for example, need to reflect the new cost reality at arm’s length. The Canada Revenue Agency and the IRS both require that related-party transactions be priced as if conducted between independent parties — and ‘independent parties’ now face tariffs.
There’s a planning silver lining worth taking seriously. Trade disruption tends to compress business valuations, particularly in manufacturing, agri-food, forest products, and building materials. A suppressed valuation is actually the ideal environment to execute an estate freeze or a corporate reorganization — transferring future growth to the next generation at a lower tax cost. If you’ve been putting that conversation off, March 2025 may be the window you’ve been waiting for.
One More Thing: Capital Gains Rate Cancelled
On March 21 — somewhat lost in the tariff news — Prime Minister Carney formally cancelled the proposed increase to Canada’s capital gains inclusion rate. The rate stays at 50%. If your departure tax calculation or corporate restructuring was based on the higher 66.67% rate (which for individuals would have applied only to gains above $250,000), it needs to be redone. The numbers are materially better than they were.
Ready to Talk?
Cross-border planning is time-sensitive and highly fact-specific. If any of the topics in this issue apply to your situation, we would welcome the conversation. State Bird Corp specializes in US–Canada cross-border tax, estate, and immigration planning for families and businesses on both sides of the border. Our team works with clients across the US and Canada — wherever your cross-border life takes you.
Sources
- https://www.thompsonhinesmartrade.com/2025/03/the-united-states-delays-implementation-of-ieepa-tariffs-against-canada-and-mexico-for-usmca-qualifying-goods-until-april-2-2025/
- https://www.congress.gov/crs_external_products/IF/PDF/IF12595/IF12595.24.pdf
- https://www.pwc.com/ca/en/services/tax/publications/tax-insights/finance-draft-legislation-increase-cap-gains-incl-rate-2024.html
- https://www.canada.ca/en/department-finance/news/2025/03/canada-responds-to-unjustified-us-tariffs-on-canadian-steel-and-aluminum-products.html
- https://enrichedthinking.scotiawealthmanagement.com/2025/04/07/cancellation-of-the-proposed-capital-gains-inclusion-rate-increase/
Sincerely,
The State Bird Corp Team
State Bird Corp
P: (602) 641-5996 · E: Info@statebirdcorp.com · W: statebirdcorp.com
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State Bird Corp is a management and financial consulting firm. State Bird Corp is not an accounting, legal or investment advisory firm. Cross-border planning is highly fact-specific. The strategies and topics described are general in nature, and readers should consult qualified specialists before taking any action. Any recommendation, inferences, or other guidance contained herein is meant for educational or general purposes and should not be relayed upon as specific advice for any person or business. Consult your legal, tax, and investment advisor for specific recommendation to your situation.