What the “One Big Beautiful Bill” Act Means for Canadian Tax Competitiveness

August 5, 2025

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, the most sweeping set of federal tax changes since 2017’s Tax Cuts and Jobs Act (TCJA). By extending key TCJA provisions that were set to expire at the end of this year and introducing new tax measures, the OBBBA reshapes the American tax landscape.

For Canadian policymakers, this raises urgent questions about Canada’s own tax competitiveness, creating pressure to respond. CPAs, in turn, must stay informed on the specifics to navigate the shifting cross-border environment.

Major Tax Changes in the One Big Beautiful Bill Act

The OBBBA introduces far-reaching reforms to both corporate and personal taxation.

Business Tax Incentives

The OBBBA’s business tax reforms centre on what expenses companies can deduct and how quickly they can write them off. The legislation permanently restores full and immediate expensing for domestic research and experimentation (R&E). Small businesses with gross receipts of $31 million or less can retroactively expense R&E costs back to the end of 2021; businesses exceeding the threshold can accelerate their remaining deductions.

The pass-through business deduction, originally introduced in the TJCA, is made permanent. This deduction allows owners of certain businesses—like sole proprietorships, partnerships, and S corporations—to deduct up to 20% of their business income from their personal taxes, potentially lowering the tax bill for many business owners, especially those with moderate incomes. The OBBBA also expands the income range over which this deduction phases in, meaning more business owners will qualify for the full benefit.

The Act permanently reinstates 100% bonus depreciation for short-lived assets and introduces temporary 100% expensing for certain structures. This applies if construction begins between January 19, 2025, and January 19, 2029, and the structure is in service by January 1, 2032, creating an incentive to build new facilities in the U.S.

On clean energy incentives, the OBBBA extends the clean fuel production credit to 2029, but eliminates most other clean energy tax credits by 2027, including those for clean electricity production, clean hydrogen, and energy-efficient commercial buildings.

Personal Tax Relief

Several key personal tax provisions originally introduced in the Tax Cuts and Jobs Act are made permanent or expanded in the OBBBA. By locking in lower tax rates for five of the seven federal income tax brackets, this will prevent tax increases for 62% of American taxpayers.

^{Source: Tax Foundation}

Starting in 2025, the Act also raises the standard deduction by $750 for single filers and $1,500 for married couples filing jointly. It permanently maintains the higher exemption and phaseout thresholds for the alternative minimum tax.

The child tax credit becomes permanent at $2,200 per child, with indexing to inflation beginning in 2027. Estate and lifetime gift tax exemptions also increase permanently to $15 million for single filers and $30 million for joint filers.

The Act includes several temporary deductions for tip income, overtime premiums, and auto loan interest on U.S.-assembled vehicles. Seniors will benefit from new temporary deductions, and the cap on state and local tax (SALT) deductions will be temporarily increased.

Economic, Fiscal, and Distributional Effects of the OBBBA

The One Big Beautiful Bill Act is expected to stimulate American economic growth, but at the cost of deteriorating federal finances and creating distributional issues.

Economic Boost

According to the Tax Foundation, the OBBBA is projected to boost long-run U.S. GDP by 1.2%, increase the capital stock by 0.7%, and lead to more hours worked and jobs created. These gains stem primarily from two sources: making personal income tax rate cuts from the TCJA permanent, and continuing accelerated deductions for various business expenses. Together, these measures are expected to encourage work, investment, and innovation, while giving businesses and individuals greater tax certainty.

^{Source: Tax Foundation}

Fiscal Effects

These changes come with a large price tag. All told, the Tax Foundation estimates that the scope of the OBBBA’s tax changes will reduce government revenue by more than $5 trillion in the 10 years between 2025 and 2034. This represents a big fiscal hit at a time when Washington is already grappling with big deficits and mounting debt. The estimated cost reduces to $4.1 trillion when accounting for economic growth. Even after factoring in spending cuts elsewhere in the bill, the legislation is projected to increase U.S. deficits by more than $3 trillion, raising the debt-to-GDP ratio by 9.6 percentage points to 126.7% in 2034.

The bill also introduces a range of politically motivated but narrowly targeted tax breaks (for tips, overtime, seniors, and certain vehicle loans) that add complexity to the tax code and undermine neutrality. While these provisions benefit specific groups, they are deficit financed, implying higher future taxes with interest. And many of these measures are set to expire in 2028, raising doubts about their long-term viability.

Distributional Issues

The OBBBA includes cuts to federal transfer programs such as Medicaid and the Supplemental Nutrition Assistance Program (SNAP), adding new work requirements and reducing support. These changes risk coverage losses and greater food insecurity for vulnerable populations.

While many income groups benefit from the OBBBA’s tax cuts, the changes to Medicaid and SNAP are expected to have a net negative impact on lower-income Americans, particularly those in the bottom two income quintiles. In contrast, households in the top 20% of the income distribution are projected to receive the largest average gains in their after-tax-and-transfer incomes.

Key Takeaways for Canada

The OBBBA’s passage marks a pivotal moment for Canadian tax policy, offering both relief in what it omits and urgency in what it enacts.

Section 899—A Welcome Omission

First, consider the omission. An early draft of the OBBBA included Section 899, a proposed retaliatory tax targeting foreign jurisdictions that impose what the U.S. deemed “unfair foreign taxes.” This provision was ultimately removed from the final bill following a G7 agreement that exempted U.S. multinationals from certain global minimum tax rules. In return, Canada pledged to suspend and eventually repeal its own Digital Services Tax (DST), helping to ease trade tensions and preserve stability in cross-border investment.

Had Section 899 been implemented, it would have resulted in significantly higher withholding taxes on Canadian residents who receive U.S.-source payments such as dividends.

Canada’s Competitive Position

While Section 899’s removal is welcome, it gives Canada limited reassurance. The One Big Beautiful Bill Act represents a major shift in U.S. tax policy, widening the competitiveness gap with Canada. At a time when Canada is experiencing weak business investment, sluggish productivity, and low per capita GDP growth, the OBBBA reinforces policies that make the U.S. even more attractive for capital and talent.

The bill’s steep fiscal cost does raise questions about its durability. Growth-enhancing provisions may be scaled back if the U.S. is forced to rein in deficits; other policies like tariff uncertainty could dampen investment and offset some of the OBBBA’s benefits.

Canadian policymakers should take note. With a federal budget expected this fall, will the Carney government bring forward tax policies that strengthen Canada’s investment climate? The Prime Minister campaigned on reviewing the corporate tax system, so now is a time to deliver.

Without bold action, Canada risks falling further behind. The U.S. has made its move. It’s time for Canada to make its own.