What Trump’s “Big, Beautiful Tax Bill” Means for Canadian ETF Investors

Something happened recently that should make even the most hands-off, couch-potato investor in Canada sit up and pay attention, especially if you own U.S.-domiciled ETFs.

On Thursday, May 22, the U.S. House of Representatives passed what Donald Trump has dubbed his “big, beautiful tax bill,” and it’s now making its way to the Senate.

The most relevant part for Canadian investors is buried in Section 899: “Enforcement of Remedies Against Unfair Foreign Taxes.” It’s part of Trump’s ongoing effort to retaliate against countries he believes are “ripping off the U.S.”

The main target here is Canada’s 3% Digital Services Tax, which applies to large tech firms and has been a sore point for Trump-aligned lawmakers.

Here’s what you need to know about how this legislation (if passed) could impact your U.S.-listed ETF holdings, and what you can consider doing in the meantime.

Why Canadian investors should care

Canada and the U.S. have long maintained tax treaties that significantly reduce the amount of withholding tax Canadians pay on dividends from U.S. stocks.

For years, the standard rate has been 15%, down from the statutory 30%. So, if a U.S. company pays a 1% dividend yield, you'd typically receive 0.85% net after withholding.

It gets even better in some cases. If you're holding U.S. stocks in a Registered Retirement Savings Plan (RRSP), the withholding tax is completely waived, bringing the rate down to 0%. And if you're investing through a corporate account, only 5% is withheld.

Trump’s new tax bill could change all of this. If Canada is formally designated as a “discriminatory foreign country” under the proposed Section 899, largely in retaliation for the 3% Digital Services Tax, the U.S. could override existing treaty protections.

That means dividend withholding tax could jump back up to 30%, with RRSP and corporate exemptions eliminated. Even worse, the bill proposes a 5% annual increase on the rate until it reaches 20%, potentially bringing the total to 50% by 2029.

So, if you’ve been enjoying high-yield U.S. dividend ETFs inside your RRSP, this bill could take a serious bite out of your income. A reinstated 30% withholding tax, with no RRSP exemption, would dramatically reduce your net yields and compound over time to hurt long-term returns. What was once a tax-efficient income strategy could suddenly become a tax drag.

What can Canadian investors do?

At this stage, I don’t think any knee-jerk reactions are necessary. No need to sell off your U.S. equity holdings just yet. The bill still needs to pass the Senate, where there will be plenty of debate, potential revisions, and hopefully some cooler, more pragmatic heads involved.

If the legislation does pass in its current form, you’ll have two main choices: accept the increased tax drag or shift your portfolio toward U.S. stocks that don’t pay dividends.

Think of companies like Berkshire Hathaway, Amazon.com, Intuitive Surgical, Monster Beverage, Chipotle Mexican Grill, TransDigm, Axon Enterprises, and O’Reilly Automotive. There’s no shortage of them.

It’s also worth noting that some ETFs have naturally low dividend payouts of 0.75% and under, especially those focused on U.S. large-cap growth stocks.

Funds tracking indexes like the Nasdaq-100 generate most of their returns through share price appreciation, not income, so an increase in withholding tax wouldn’t hurt as much in those cases.

Either way, this is a strong reminder that politics, even across the border can significantly affect your after-tax returns. Stay informed.