The One Big Beautiful Bill Act (OBBBA) is a sweeping U.S. tax reform package currently advancing through Congress. It introduces a range of measures that pose a direct threat to Canada’s investment, domestic manufacturing capacity, and research-intensive activities. From steep increases in withholding taxes to aggressive incentives for firms to establish new manufacturing facilities and conduct R&D in the U.S., this legislation risks not only reducing returns on Canadian investments in the U.S. but also diverting capital and high-value economic activity away from Canada.
Our analysis outlines the scale:
Canadian investors could face billions in new taxes on their U.S. investments. An illustrative scenario concluded that a Canadian pension fund with 47% of its portfolio in the U.S. could face up to $3.36 billion in new U.S. taxes annually. At a broader scale, Canadian corporations holding U.S. securities could face up to $81 billion in additional taxes over the next seven years.
As Canada–U.S. treaty protections could be overridden, withholding tax on dividends paid to Canadian individuals could rise from 15% to as high as 50%, with similar increases affecting corporations, pension funds, university endowments, insurers, sovereign wealth funds, foundations, governments, and related entities.
Canada’s manufacturing footprint is at risk of erosion. U.S. incentives—such as 100% bonus depreciation for most manufacturing assets, new factory builds, and renovations, along with full expensing for domestic R&D—create a powerful incentive for firms to shift expansion plans or operations to the U.S.
Canada could be at a structural disadvantage when it comes to retaining and commercializing intellectual property. Without comparable domestic incentives—such as those offered through the U.S. FDII and GILTI regimes—Canada risks reinforcing a long-standing pattern: generating innovation here, but losing the commercialization and economic returns to other jurisdictions.
We urge the federal government to take the following immediate steps:
Reconsider Canada’s position on the Digital Services Tax (DST) and Undertaxed Profits Rule (UTPRs) to avoid U.S. retaliation under OBBBA’s Section 899—also known as the “Revenge Tax.”
Introduce accelerated capital cost allowance measures to match U.S. incentives and reduce the tax cost of investing in manufacturing and R&D within Canada.
Implement a patent box regime with preferential tax rates on income from IP developed and commercialized in Canada, as committed in the 2024 Fall Economic Statement.
With the U.S. administration targeting Friday, July 4, for the passage of the One Big Beautiful Bill Act, the coming days are critical. The Board has released this brief to raise awareness of the issue and will continue to monitor developments closely, providing further analysis and recommendations based on the final outcome.