Last week the federal government tabled a Notice of Ways and Means Motion in Parliament that proposed a tax cut for middle income earners, along with a proposal to eliminate the Goods and Services Tax (GST) for first-time home buyers on new homes valued at as much as $1 million, while lowering the GST ‘for first-time home buyers on new homes valued between $1 million and $1.5 million.’ The motion would also officially remove the consumer carbon price from law.

The income tax proposal—which will reduce the lowest marginal tax rate to 14 per cent from 15 per cent, effective July 1^st, 2025—is aimed at reducing the cost of living for what the government estimates will be as many as 22 million Canadians. Two-income families are projected to save as much as $840 per year in 2026.

The Canada Revenue Agency notes that because income is reported on an annual basis, and the tax cut would take effect mid-year, “… the full-year tax rate for 2025 will be 14.5 per cent and the full-year rate for 2026 and future tax years will be 14 per cent.” This will also reduce the rate at which many non-refundable tax credits are calculated as these are based on the lowest personal income tax rate.

Section 899 of ‘One, Big Beautiful Bill Act’ could be ugly for some Canadian corporations, taxpayers

The U.S. government’s One, Big Beautiful Bill Act is sweeping budget legislation that, if passed in its current form, would introduce tax cuts for some wealthier Americans, while reducing funding for several entitlement programs and significantly increasing the already staggering U.S. deficit. But it’s Section 899 of the proposed legislation, Enforcement of Remedies Against Unfair Foreign Taxes, that is causing widespread concern on this side of the border.

The provision targets what the Trump administration deems to be ‘unfair’ taxes imposed by countries around the world—which at this point would include Canada—that run counter to U.S. interests. Canada’s digital services tax, along with some foreign governments’ undertaxed profit taxes, seem to be directly in the U.S. government’s crosshairs with the proposed bill. To remedy any perceived taxation imbalances, Section 899 would increase U.S. tax rates on some individual investors, along with Canadian businesses and even government entities (such as pension funds) with U.S. investments or assets.

The legislation has passed in the U.S. House of Representatives and now moves on to the Senate, where it could face significant amendments. But if Section 899 remains largely intact, the impact on Canadians would be dramatic. The revised tax regime would include a 5 per cent annual increase to the current 15 per cent withholding tax on U.S. dividends, increasing it to 35 per cent over four years, and as much as 50 per cent if new rates and treaty rates compound. Canadian corporations could see taxes on income from U.S. sources increase by as much as 20 per cent over four years, while withholding tax rates on distributions from U.S.-based retirement accounts would also spike, putting financial pressure on Canadian retirees.

Cross-border business investment and portfolio management could be thrown into turmoil by the new legislation. Potential loopholes, varying interpretations of what may constitute an ‘unfair’ tax, along with volatility in U.S. policymaking, could create major compliance challenges for Canadians moving forward.

That said, affected taxpayers shouldn’t panic. The legislation has not yet become law and is subject to revision. Awareness is important at this stage, but a proactive assessment of an individual or corporation’s U.S. business and investment risk exposure would be prudent, in case the new taxes do take effect. The RH Partners tax team will provide updates as they become available.

Prescribed rate drops for Q3 2025

The Canada Revenue Agency has announced the prescribed annual interest rates for the third quarter of 2025, with the prescribed rate on loans to family members reaching its lowest level since Q4 2022. The new rates are in effect from July 1^st to September 30^th, 2025.

The prescribed rate—which applies to amounts owed to and by the CRA—peaked at 6 per cent in the first half of 2024. The new rates will be the following:

• On overdue taxes, Canada Pension Plan contributions and employment insurance premiums: 7 per cent (down from 8 per cent in Q2 2025)
• On corporate taxpayer overpayments: 3 per cent (down from 4 per cent in Q2 2025)
• On non-corporate taxpayer overpayments: 5 per cent (down from 6 per cent in Q2 2025)
• On rates used to calculate taxable benefits for employees and shareholders from interest free and low-interest loans: 3 per cent (down from 4 per cent in Q2 2025)
• On corporate taxpayers’ pertinent loans or indebtedness: 6.62 per cent (a decrease from 7.08 per cent in Q2 2025)

The RH Partners Tax Team

For more information on tax planning and compliance, contact a member of the RH Partners Tax team today.