At a glance
The One Big Beautiful Bill Act (OBBBA), signed into U.S. law on July 4, 2025, introduces $4.5 trillion in tax reforms that permanently extend and modify several provisions from the 2017 Tax Cuts and Jobs Act (TCJA) while adding new measures that affect Canadians with U.S. connections. Key changes include higher estate and gift tax exemptions without a sunset clause, updates to controlled foreign corporation rules, a 1% excise tax on certain remittance transfers, and the introduction of “Trump accounts” for children’s savings. Most provisions take effect in 2026, creating both planning opportunities and new compliance considerations for Canadians with U.S. assets or cross-border ties.
An overview of how the OBBBA may impact Canadian individuals
The OBBBA permanently extends and/or modifies certain expiring legislative changes from the Tax Cuts and Jobs Act (TCJA) enacted in 2017 and introduces some new provisions. The new bill offers a mix of favorable and unfavourable changes for individual taxpayers. Key provisions of the bill potentially impacting Canadians include:
- permanent increase to the estate and gift tax exemption;
- various changes to controlled foreign corporation rules;
- imposition of a 1% excise tax on remittance transfers to persons outside the U.S.;
- introduction of Trump accounts for savings for qualifying children; and
- various changes to income tax rates, deductions and credits.
Notably, the final bill excludes proposed new Section 899, which would have imposed retaliatory U.S. taxes on residents of countries imposing “unfair foreign taxes” and would potentially have raised U.S. withholding taxes and income taxes on a variety of types of U.S. source income received by Canadians. The provision that was included in earlier versions of the bill passed by the House and Senate was removed based on negotiations between the U.S. and the other G7 member nations.
Estate and gift tax exemption
The OBBBA will increase the harmonized estate tax exemption and lifetime gift tax exemption amount for U.S. citizens and resident aliens to $15,000,000 effective in 2026. This exemption will be indexed annually to inflation. Unlike past legislation, the OBBBA does not include a “sunset clause” where the legislation is scheduled to expire on a certain date and the exemption would revert to the previously legislated amount.
Note that the current harmonized exemption for 2025 is $13,990,000 and had been scheduled to decrease by half in 2026 prior to the passing of the OBBBA (i.e. to slightly over $7,000,000, accounting for inflation adjustment).
Canadians are generally subject to U.S. estate tax upon death based on the fair market value of U.S. situs assets, which include U.S. real estate and shares of U.S. corporations held at death—even U.S. marketable securities held in a Canadian brokerage account. However, Canadian residents have access to the same estate tax exemption as U.S. individuals by virtue of the Canada – U.S. Income Tax Convention (“the Treaty”). As such, Canadians are generally not subject to U.S. estate tax on death if their worldwide net worth is below the exemption amount in effect at the time of their death. The exemption is effectively at least doubled if assets are passing to a surviving U.S. noncitizen spouse. The lack of sunset clause in the OBBBA means that Canadians will face less uncertainty with respect to U.S. estate tax planning.
Canadians are generally subject to U.S. gift tax based on the fair market value of tangible U.S. situs assets (e.g. U.S. real estate) that they gift during their lifetime. Unlike for estate tax, the Treaty does not provide an enhanced gift tax exemption, and annual exemptions under U.S. domestic tax law are significantly limited. For 2025, the annual taxable gift exclusion is $19,000 per recipient ($190,000 for gifts to a U.S. noncitizen spouse). Gifts above these annual exclusion amounts are subject to gift tax at graduated rates ranging from 18% to 40%.
For more information regarding U.S. estate and gift tax for Canadians, see a previous BDO Tax Bulletin U.S. estate tax issues for Canadians.
Modifications to controlled foreign corporation rules
A controlled foreign corporation (CFC) is generally a non-U.S. corporation of which more than 50% of the stock—based on aggregate voting power or value—is owned by U.S. shareholders. A U.S. shareholder is a U.S. taxpayer who owns shares representing at least 10% of the votes or value of all stock of the corporation. Such shares can be owned directly or indirectly—even constructively, based on shares owned by certain related parties.
Under the TCJA, U.S. shareholders of CFCs became subject to tax on global intangible low-taxed income (GILTI) in 2018, even if the income was not distributed to the U.S. shareholder. Conceptually, GILTI represents the after-tax active business income of a CFC. The OBBBA renames GILTI as net CFC tested income (NCTI). Prior to the TCJA, U.S. shareholders of CFCs were only subject to accrual-based taxation of subpart F income, which conceptually represents non-business income of a CFC. Our previous Tax Alert—New U.S. tax on U.S. citizens owning Canadian private companies—covers more details on the original GILTI rules.
- The reduction to NCTI for the deemed return on qualified business asset investment (QBAI) was repealed.
- The Section 250 deduction is reduced from 50% of NCTI to 40%.
- The foreign tax credit for foreign income taxes deemed paid on NCTI is limited to 90% of foreign income taxes deemed paid instead of 80%.
- Expenses allocable to net CFC tested income are limited to the section 250 deduction and directly allocable expenses.
- Interest expenses and R&E expenses are not allocable to foreign-source NCTI.
- Permanent extension of the look-through rule for CFCs, which provides that dividends, interest, rents and royalties received or accrued from another CFC are not taxed under the subpart F rules.
- Modification of pro rata share rules for subpart F income to apply to U.S. shareholders owning the CFC at any point during the year, rather than just at the end of the year.
- Restoration of the limitation on downward attribution of stock ownership (see our publication on the impact of the OBBBA on Canadian businesses for more details).
- Introduction of Section 951B to apply the NCTI and subpart F rules beyond U.S. shareholders of CFCs, such that they apply to structures including foreign controlled U.S. shareholders and foreign controlled foreign corporations.
The CFC rules apply to Canadian residents who are U.S. persons (i.e. U.S. citizens or Green Card holders) and directly, indirectly, or constructively own shares representing more than 50% of the total votes or value of Canadian private companies and other non-U.S. private companies. The net effect of the changes to the Section 250 deduction and the foreign tax credit limitation is that the minimum effective foreign corporate tax rate necessary to be paid by a CFC to fully offset U.S. tax on NCTI increases from 13.125% to 14% for a U.S. corporate shareholder of a CFC, which is taxed at 21%. A U.S. individual shareholder can make an election under Section 962 to be taxed as a U.S. corporation for the purposes of the CFC rules. For Canadian CFCs generating NCTI, the Canadian corporate tax may not meet this threshold, particularly if the small business deduction is claimed. The U.S. individual shareholder would essentially pay U.S. personal tax to top up the Canadian corporate tax rate on NCTI to 14%.
Excise tax on remittance transfers
Effective in 2026, the new law requires that a 1% excise tax on certain remittance transfers be collected by the remittance transfer provider and paid quarterly to the U.S. Treasury. The tax imposed will apply only to any remittance transfer for which the sender provides cash, a money order, a cashier’s check, or any other similar physical instrument through a remittance transfer provider to an account outside the U.S.
The terms “remittance transfer”, “remittance transfer provider”, and “sender” are defined in section 919(g) of the Electronic Fund Transfer Act. A remittance transfer provider refers to any party who routinely offers remittance transfers to consumers, whether or not the consumer has an account with them. Remittance transfers funded via an account held in or by certain listed U.S. financial institutions or funded with a U.S.-issued debit or credit card, will be exempt from the tax.
Although the original scope of the provision appeared to potentially be quite broad, in light of the exceptions provided in the final legislation, the scope of this provision has been substantially narrowed. Routine transfers of funds from U.S. financial institutions to Canadian financial institutions should avoid being subject to the tax, and it appears that this provision is targeting transfers funded by the underground economy.
Introduction of Trump accounts
The OBBBA established Trump accounts—a new type of savings account defined with reference to the rules for individual retirement accounts (IRAs). Trump accounts are available starting in 2026 for qualifying children under age 18 having Social Security Numbers.
Contributions are limited to $5,000 annually (indexed annually for inflation) and are not deductible. U.S. citizen children born in the years 2025 through 2028 are eligible for an initial government-funded contribution of $1,000. Withdrawals are permitted starting in the year the account beneficiary turns 18. Amounts contributed to the account by the person establishing the plan or the government are not taxable upon withdrawal, such that only the income within the account is taxed in the beneficiary’s hands for U.S. tax purposes.
While the CRA has not issued any specific guidance with respect to the Canadian tax consequences of Trump accounts, Trump accounts are not expected to be accorded any special preferential tax treatment for Canadian tax purposes, analogous to the treatment of existing U.S. “529 plans” established for education savings for children.
If so, Canadian taxation would likely arise for the plan contributor when the income is generated within the Trump account due to income attribution rules, rather than being deferred and taxed in the beneficiary’s hands upon eventual withdrawal. This may give rise to double taxation. Consideration should be given to having a non-resident of Canada make the contributions to the account.
In addition, consideration would need to be given as to whether government contributions are considered subject to Canadian tax, either upon receipt within the account or upon eventual withdrawal.
Trump accounts would likely be considered subject to annual information reporting on Canadian Form T1135 (Foreign Income Verification Statement), if one’s aggregate foreign investments have cost of over $100,000 (in Canadian dollars) at any point during the year.
Changes to tax rates, deductions, and credits
Individuals should be aware of some notable OBBBA provisions affecting tax rates, deductions, and credits.
- A decrease in income tax rates and tax brackets for individuals, estates, and trusts (top rate of 37% on ordinary income), with annual inflation adjustments applied to the 10%, 12% and 22% brackets.
- An increase in the standard deduction from $12,000 to $15,750 for individuals and from $18,000 to $23,625 for heads of household.
- The elimination of personal exemption deductions.
- The elimination of miscellaneous itemized deductions such as unreimbursed employment expenses, tax preparation fees and investment expenses (with the exception of unreimbursed educator expenses).
- The elimination of the itemized deduction for mortgage interest relating to home equity indebtedness.
- The mortgage interest deduction for acquisition indebtedness is limited to interest on indebtedness of $750,000 ($375,000 for married taxpayers filing separately).
- The elimination of the moving expense deduction.
- The 20% deduction for qualified business income (QBI), with phase-in income limitations increased.
- The refundable portion of the child tax credit of $1,400 per qualifying child (adjusted for inflation to $1,700 for 2025) and elevated phaseout threshold of $200,000 of adjusted gross income (AGI) for single filers ($400,000 for married taxpayers filing jointly) were made permanent.
- The maximum state and local tax (SALT) itemized deduction was increased from $10,000 to $40,000 for 2025 (deductions above $10,000 subject to phaseout provisions based on modified AGI), will be increased by 1% annually thereafter, and will revert to $10,000 in 2030.
- The replacement of the eliminated Pease itemized deduction limitation with a new limitation for 2026, reducing itemized deductions by 2/37 of the lesser of itemized deduction amount or taxable income above the 37% tax bracket threshold.
- An increase in non-itemized charitable contribution deduction from $300 to $1,000 in 2026 ($600 to $2,000 for joint filers).
- A limit on deductions for gambling losses to 90% of losses and to the extent of gambling winnings starting in 2026.
- The increase to the alternative minimum tax (AMT) exemption amounts is permanently extended beyond 2025, the phaseout amount is increased from 25% to 50% in 2026, and inflation adjustments are modified.
- An increase in the child tax credit (CTC) for 2025 to $2,200 per qualifying child, indexed annually for inflation.
- An increase in the child and dependent care credit from 35% to 50% of qualified child and dependent care expenses, with the increased rate subject to phaseout based on AGI.
- A $6,000 deduction for seniors for the years 2025 through 2028, reduced by 6% of adjusted gross income (AGI) over $75,000 for individuals or $150,000 for joint filers.
- A deduction for car loan interest of up to $10,000 for the years 2025 through 2028 for the purchase of personal use vehicles assembled in the U.S., subject to phaseout based on adjusted gross income.
- Itemized deductions for charitable contributions will be subject to a floor of 0.5% of adjusted gross income starting in 2026.
- A deduction of up to $25,000 for tips and gratuities income for the years 2025 through 2028, subject to phaseout for higher income earners.
- A deduction of up to $12,500 ($25,000 for joint filers) of overtime pay for the years 2025 through 2028, excluding certain highly compensated employees.
Via a combination of income exclusions and foreign tax credits, U.S. taxpayers who are Canadian residents subject to Canadian income tax on their worldwide income will generally find that the pay the higher of the U.S. or Canadian income tax on any income that is also subject to U.S. tax. Since average Canadian tax rates on most types of income tend to exceed average U.S. tax rates on that income, any increases or decreases in U.S. tax may not influence their overall tax burden, just the split thereof between the U.S. and Canada. That having been said, it is possible that these changes will result in ultimate tax costs or savings for some Canadians subject to U.S. income taxes.
Examples:
Many U.S. citizens and Green Card holders resident in Canada are eligible to claim the CTC with respect to their U.S. citizen children who have Social Security Numbers. Since the CTC is in part a refundable credit, it can result in annual U.S. tax refunds for certain taxpayers who owe little or no U.S. tax annually, and serve as an incentive for them to be compliant with their annual U.S. filing obligations.
Since gambling winnings are not taxable in Canada, any increase in U.S. tax on this income would elevate a Canadian’s overall tax burden. Under the Treaty, Canadians are taxed at 30% on net gambling winnings. Prior to the OBBBA, if a Canadian had a net loss from gambling during the year, no tax would be payable. Starting in 2026, due to the 90% deduction limitation, it appears that tax would be payable in certain situations.
Navigating what comes next
Many of the legislative changes in the OBBBA are simply extending existing provisions that were scheduled to expire in 2025 and revert to the pre-TCJA legislation, and as such will maintain the status quo in terms of U.S. tax for Canadian individuals. However, there are also some changes that modify current tax rules—or introduce entirely new rules. Most of those changes will come into effect in the 2026 tax year, so the impact will not be felt immediately.
In light of significant changes to the CFC rules, it is important for Canadians who are U.S. persons to review these changes carefully and consider their impact on existing and planned corporate structures to ensure continued compliance and tax efficiency.
It is expected that further guidance will be forthcoming in due course, such as Treasury Regulations clarifying the application of newly enacted tax legislation. There is also the potential for further new tax legislation before the end of the year. For more information on how our team can assist you in navigating the complexity of tax reform in the U.S., please contact us.
The information in this publication is current as of July 28, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.