Now What?

“My dear wife has listened to me espouse your wisdom in the morning over coffee,” he says. “With good coffee, good company and borrowed wisdom I have had 30 good years together with her.”

Ah yes. The GreaterFool marital bliss strategy. Saving romantic unions across the land, one at a time, with arousing talk of basis points, index funds, monetary policy and, of course, shorts and BRAs (buyer representative agreements, silly).

“She actually asked me to ask you about Orange Man’s big beautiful bill and the potential effect on US earned income,” says Vexed in Victoria, sharing another intimacy. The lovebirds are in their sixties with a conservative portfolio populated about 12% in US dividend-paying funds.

And now comes trouble. Trump’s ‘big beautiful tax act’ which, if approved by the Senate (after passing the House), will become law. Yesterday we mused on some of the macroeconomic fallout. Today, something more personal. And scary.

“Will this new bill really result in all dividend and interest income earned by non-US citizens having a 50% withholding tax if it passes. We can only see that having one more negative effect on Mr. Market so why continue to hold for that? Have I got all this right?”

Close enough, Romeo. This is not a good thing.

The Trump bill has two tax bombs that will affect millions of we little beavers, unless Big Daddy Carney can negotiate his way out of this trap. The first (Section 899) will steadily increase the withholding tax Canadian companies and investors pay on American dividend income. Now it’s a tolerable 15%. The Trump bill would hike that by 5% per year until it hits a withering 50%.

That sucks for retirees like Vexed. But it’s a disaster for Canadian corps with US operations flowing money up to the parent in the form of dividends. By one estimate, this will cost then more than $80 billion over the next seven years – and this measure will override the existing Canada-US Tax Treaty, which has formed the basis of business planning for decades.

So, Orange Guy, howcum?

It’s payback, apparently, for Canada having imposed a digital services tax on American tech giants and social media platforms. Already outfits like Meta have banned links to Canadian media (Facebook) in order to get around the law, but the White House considers this to be a major irritant. (Sentiment is the same regarding Europe, which Trump overnight suggested could face a 50% tariff.) This uber-withholding tax will remain, the US says, until ours is offed.

But there’s more.

On page 1,062 of the bill lives Section 112105, intended to financially cripple migrants and legal non-citizens living in the US (including Canadians with green cards) with a new Excise Tax on Remittance Transfers of US Currency to a Foreign Country. It started out at 5% and was apparently scribbled down to 3.5% in the last few hours.

What’s this?

Simply a tax remitted to the US Treasury on any money paid out of the country which is then converted to another currency – like Canadian dollars. The intended targets are Mexico and South America, and migrants living (and working) in America who send money home to their families. Last year that amounted to about $160 billion.

For us, there are immediate implications if the bill clears the Senate, starting in 2026.

“So selling a vacation property in the USA, drawing a US pension, taking 401K withdrawals, or simply making investments in US$ will incur a penalty when you convert the funds back into Canadian dollars?” asks blog dog Andre. “Is it true and would you consider possibly speaking to this issue?”

Murky. But possibly true. And this tax of 3.5% would be atop the normal taxes and FX exchange costs. Sucks. By the way, Trump’s taxfest would also hit giant entities like the Canada Pension Plan Investment Board and First Nations groups with transborder funds.

So what do we do now?

Nothing. Not yet. Mr. Market’s in a funk again over the proposed Euro tariff, a new assault on Apple (being told to repatriate iPhone manufacturing, or else) plus the tax bill – so asset values are under pressure. Never sell into a storm.

Ottawa is in the thick of negotiations with the Americans over a new NAFTA, tariff mitigation and the junk in this new tax act. We could easily back down on the digital services tax, for example, and probably will. Just wait.

About the picture: “I’ve been a long time reader of yours and really appreciate the free advice you give out every day,” writes Jeremy. ” It’s a nice reminder to trust the long term process and stay invested in a globally diversified portfolio of ETFs and tune out the everyday noise. We’ve stuck to that plan over the last decade now and it’s paid off greatly. Here’s a photo of our pup, Darla, drying off on a beach in Victoria, BC.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.