The “One, Big, Beautiful Bill” has passed: How does it impact US taxpayers?

The Bill enacts the largest US tax cuts in American history, fulfills key campaign promises, and extends several tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA) which were slated to expire at the end of 2025. 

The effective dates of the new tax measures vary by provision, with some taking effect immediately on July 4, 2025. 

Summary of key provisions

Bonus depreciation

The Bill extends 100% expensing (bonus depreciation) for qualified property placed into service on or after July 4, 2025, and before January 1, 2031. The Bill also extends bonus depreciation to certain real property considered “qualified production property” used in a “qualified production activity”, such as manufacturing, production, or refining of tangible personal property.  

These provisions are beneficial for taxpayers considering expansion in the US and/or operations in the US as the capital costs associated with such investments may be immediately deductible. However, taxpayers should be aware that many states decouple from federal bonus depreciation legislation, which may result in smaller tax savings at the state level.

Research & Experimental expenditures

The Bill provides some relief for taxpayers by permanently reinstating the immediate deduction of domestic research and experimental (R&E) expenditures paid or incurred in taxable years beginning on or after December 31, 2024. This is an amendment to the previous TCJA provision requiring taxpayers to capitalize these expenses for US tax purposes and amortize them over five years. Taxpayers previously impacted by the TJCA provisions may have the ability to file amended returns to retroactively expense their R&E costs or accelerate their remaining unamortized R&E costs over a one- or two-year period.

These changes provide a substantial benefit to taxpayers that invest in US-based developers and other research personnel and activities. It’s important to note that the requirement to capitalize foreign R&E remains in place.  

Interest deductibility

The Bill reinstates the use of an Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) approach in calculating the interest expense limitation under IRC section 163(j) for tax years beginning on or after December 31, 2024.

This change partially reverses an unfavourable provision of the TCJA, which reduced the interest deductibility threshold to 30% (from 50%) of adjusted taxable income and shifted the calculation basis from adjusted taxable income under an EBITDA approach to an Earnings Before Interest and Taxes (EBIT) approach. This provision previously limited interest deductibility for many taxpayers, particularly for those with significant capital asset additions eligible for bonus depreciation.  

Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income deductions

The Bill makes significant changes to the taxation of foreign income. It re-names Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI) provisions to “Foreign-Derived Deduction Eligible Income” and “Net CFC Tested Income”, respectively. Key modifications include:

• An increase in the GILTI inclusion rate to 60% (from 50%)
• An increase in the allowable foreign tax credit against GILTI to 90% (from 80%)
• A reduction in the FDII deduction to 34% (from 37.5%), raising the effective tax rate on FDII income to 14% (from 13.125%)

Despite these increases, the changes provide net tax savings for many taxpayers compared to the treatment that would have been applied under the TCJA after 2025. Under the TCJA, the FDII deduction was scheduled to drop to 21.875%, and the GILTI inclusion rate was set to rise to 62.5%, increasing the effective tax burden on foreign income.

Originally introduced in the TCJA in 2017, the FDII and GILTI provisions were designed to incentivize US companies to retain and develop intangible assets domestically. FDII allows a deduction on qualifying foreign-sourced income, while GILTI requires taxpayers and shareholders to include a portion of income earned by foreign subsidiaries in their US taxable income.

Base Erosion and Anti-Abuse Tax 

The Bill has modified the Base Erosion and Anti-Abuse Tax (BEAT) provisions by increasing the tax rate to 14% (from 10.5%) and decreases the base erosion payment threshold to 2% (from 3%). It also introduces exclusions for base erosion payments made to “high tax” jurisdictions that may also apply in some situations. 

Removal of “Revenge Tax”

A notable omission from the Bill are the provisions of Section 899, commonly referred to as the “Revenge Tax”. These provisions have been removed following agreements reached between the G7 countries regarding the application of Pillar Two taxation to US multinational corporations, as well as Canada’s repeal of its digital services tax as part of broader trade negotiations between Canada and the US.

Takeaway

Current estimates project that the Bill will result in approximately $5.0 trillion in tax cuts over a 10-year period (2025-2034). This takes into account both the extension of expiring provisions from the TCJA and the introduction of new measures aimed at reshoring jobs, investment, and business activity to the US.  

In light of several favourable provisions of the Bill, Canadian taxpayers with operations in the US should revisit their tax structures to evaluate potential tax implications and strategies that could help them capitalize on these tax measures. They should also consider how the provisions will impact any forthcoming Canadian tax reforms or tariffs that could affect their business. 

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^Disclaimer 

^{The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.}