The Canadian Investor with US Stocks and Accounts
By Bryant Andrus
Profile: The Canadian Investor with US Stocks and Accounts
TL;DR
- Section 899, the so-called ‘revenge tax,’ could have overridden treaty rates and pushed withholding on some US income paid to Canadians as high as 50%.
- Canada announced on June 29 that it would rescind its Digital Services Tax, and Section 899 was dropped after a G7 deal, but the episode showed Congress can override the treaty under the later-in-time rule.
- Canadians holding US investments should confirm their broker is applying treaty withholding rates; missing forms often mean overpaying every year.
If you’re a Canadian resident — whether a permanent resident, a dual citizen, or simply someone who built up a US brokerage account over the years — June 2025 served up a stress test that revealed exactly how exposed your US investment income can be to changes in Washington.
The ‘One Big Beautiful Bill’ moving through Congress contained a provision called Section 899. Dubbed the ‘revenge tax’ by the financial press, it would have raised withholding rates by up to 20 percentage points, phased in 5 points a year, on income paid to residents of countries imposing ‘discriminatory’ taxes on US companies — with Canada’s Digital Services Tax explicitly in the crosshairs.
What Section 899 Would Have Done to You
Under normal treaty rules, US dividends paid to Canadian residents are withheld at 15% (5% applies only to a Canadian company owning at least 10% of the voting stock). Interest on most cross-border payments is withheld at zero under the treaty’s 2007 protocol. Section 899 could have overridden those treaty rates and imposed withholding of up to 50% on some payments. For a Canadian with a meaningful US stock portfolio receiving dividend income, this would have been an immediate, material hit to after-tax returns.
The crisis was resolved — barely. On June 26, Treasury asked Congress to drop Section 899 after the G7 agreed a ‘side-by-side’ deal exempting US companies from key global minimum tax rules. On June 29, Canada separately announced it would rescind its Digital Services Tax to restart trade talks. Section 899 was removed from the bill before it passed. But the episode exposed something important: the Canada-US Tax Convention, while durable, is not invulnerable to US domestic legislation. The ‘later-in-time’ rule allows Congress to override treaty provisions. Courts have applied it, including to the Canada treaty — and June showed how quickly that risk can become real.
What This Means for How You Hold US Investments
The right response to this episode is not panic — it’s structure. Canadians holding US dividend-paying stocks should understand exactly what treaty protections apply to their specific investments, what the withholding rate is, and how those rates are documented with their broker. Many Canadians have US accounts where the broker is applying the default 30% rate rather than reduced treaty rates, simply because a valid Form W-8BEN hasn’t been filed. That gap costs money every year — and was a much bigger risk in June 2025 than at any time in recent memory.
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.canada.ca/en/department-finance/news/2025/06/canada-rescinds-digital-services-tax-to-advance-broader-trade-negotiations-with-the-united-states.html
- https://laws-lois.justice.gc.ca/eng/acts/C-10.7/page-5.html
- https://www.michaelbest.com/Newsroom/370805/US-Treasury-Secretary-Scott-Bessent-Announces-Deal-on-Revenge-Tax-Proposed-Section-899-Expected-to-be-Removed-from-One-Big-Beautiful-Bill-Act
- https://www.millerthomson.com/en/insights/corporate-tax/canadas-digital-services-tax-what-the-june-2025-reversal-means-for-your-business/
- https://www.aoshearman.com/en/insights/proposed-section-899-analysis-of-both-the-house-and-senate-bills
- https://www.everycrsreport.com/reports/LSB10047.html
- https://www.irs.gov/instructions/iw8ben
- https://www.ey.com/en_gl/technical/tax-alerts/g7-issues-statement-on-global-minimum-taxes
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.