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Even though business owners are worried about tariffs, US tax measures should remain relatively stable.
Since Donald Trump was elected President of the United States, many Canadian business owners have become extremely worried about the possibility of customs duties on Canadian products imported to the US. Even before his inauguration, the newly-elected Trump announced his intention to impose a 25% tariff on all Canadian products. However, this has not yet been confirmed and will depend on intergovernmental negotiations.
However, the leaders of Canadian organizations that do business in the US should not be concerned about the tax environment, which should remain relatively unchanged even after Donald Trump’s return to the White House.
Indeed, the major tax measures introduced following the sweeping tax reform adopted in December 2017 during Trump’s first presidency are still in effect. The Biden administration attempted to modify certain elements of this tax reform but was unsuccessful since the changes were not approved by Congress.
Therefore, even though certain elements of this tax reform will expire at the end of 2025, they could now be renewed or modified to promote interest among businesses who carry out manufacturing and other activities on US soil.
Below is an overview of some of the most important measures.
Corporate income tax rates
The Trump administration’s tax reform led to a sharp decline in corporate income tax rates which dropped from the highest marginal tax rate of 35% to a flat rate of 21% as of January 2018. This measure is still in effect and is not subject to change in 2025. The newly elected president has even proposed lowering this corporate tax rate to 15% for businesses that manufacture goods in the US.
Net operating losses
We also do not expect the new US government to make changes to the measures regarding net operating losses. Apart from a brief period during the pandemic crisis, these losses could not be deducted in any preceding taxation years as of 2018, but they could be carried forward indefinitely. The use of these operating losses is capped at 80% of a corporation’s taxable income for a given year.
Accelerated amortization
Accelerated amortization, which allows businesses to deduct the cost of an investment more quickly than the acquired asset’s useful life, may be subject to a significant change.
In 2025, a business may deduct 40% of the value of its investments in non-property tangible assets. Under the existing legislation, this accelerated capital cost allowance will be gradually reduced to 20% in 2026 and to 0% in 2027.
Estate taxes exemption
US estate taxes are paid by all individuals who own assets, property and other investments in the US, regardless of whether they’re considered a US citizen. As a result, their estate may be required to pay estate taxes where the market value of assets held in the US is greater than US$60,000 at the time of death.
However, Canadian citizens may be exempt if the value of their worldwide estate is less than US$13.61M. It should be noted, however, that this amount varies each year and the existing legislation stipulates that this exemption will expire on December 31, 2025 and revert to the much lower 2017 level of US$5.49M which predates the Trump administration’s tax reform.
So we can expect this estate taxes exemption to be renewed by the new government. In all cases, this exemption should be taken into account during the estate planning process.
In short, we should not anticipate major upheaval on the part of the new Trump administration following his official inauguration as president. There may be change on a commercial level, particularly if tariffs are introduced, but the tax environment should remain relatively stable for businesses.