When Canadians invest or operate businesses in the United States, they often face complex tax issues that connect both countries’ systems. The U.S. Tax Cuts and Jobs Act introduced several new sections—965, 250, and 245A—that changed how U.S. taxes apply to foreign earnings. For Canadians involved in cross-border businesses, understanding these sections is an important part of cross-border tax planning and U.S. and Canada financial planning. In simple terms, these rules decide how profits from foreign companies are taxed and what kind of deductions or exemptions may apply.

Let’s break down what each section means and how Canadians can use them effectively while staying compliant with both tax authorities.

Section 965: The Transition Tax
Section 965 is also known as the “transition tax.” It was introduced when the United States switched from a worldwide tax system to a more territorial one. Before this rule, U.S. companies had to pay tax on all their global income. After the change, the U.S. government required companies to pay a one-time tax on all untaxed foreign earnings they had accumulated overseas.

For Canadian business owners who have U.S. corporations or dual citizenship, this section can be confusing. If a Canadian owns shares in a U.S. company that controls foreign subsidiaries, Section 965 may apply. It taxes the past profits of those foreign companies even if the money wasn’t brought into the United States. The goal was to ensure that companies paid at least some tax before the new territorial system took effect.

While this rule mainly affects large corporations, it can also impact individual Canadians who are considered “U.S. persons” under tax law. In such cases, the owner may need to file additional forms and possibly pay tax on previously untaxed earnings. A qualified cross-border tax advisor can help calculate how much of the 965 tax applies and what credits may offset it.

Section 250: Deductions for Foreign-Derived Income
Section 250 offers deductions that can reduce taxable income for certain types of foreign earnings. It was designed to make U.S. companies more competitive globally. Under this rule, companies can claim a deduction for what is called “Foreign-Derived Intangible Income” (FDII) and “Global Intangible Low-Taxed Income” (GILTI).

For Canadians who operate U.S. corporations, understanding Section 250 is useful because it may lower the overall tax burden on international income. For example, if a U.S. business owned by a Canadian sells products or services to customers outside the United States, it could qualify for this deduction. The result is a reduced effective tax rate on foreign income, which can improve profits and support better cross-border business growth.

However, calculating the deduction can be complex because it depends on several factors—like total income, tangible assets, and the type of foreign sales made. It’s wise to consult a professional who specializes in cross-border tax planning to ensure the correct use of this section.

Section 245A: The Dividends Received Deduction
Section 245A is another key part of the U.S. move toward a territorial tax system. This section allows certain U.S. corporations to receive dividends from their foreign subsidiaries tax-free. In simple words, if a U.S. company owns at least 10% of a foreign company, it can usually receive dividends without paying U.S. federal tax on them.

For Canadians who control U.S. corporations that own foreign subsidiaries, Section 245A can be a big advantage. It means profits earned abroad can often be brought back to the U.S. without triggering additional tax. However, it’s important to structure ownership correctly. Not all entities or situations qualify for this deduction. For instance, it only applies to corporate shareholders, not individuals.

Making It Work for Canadians
Using Sections 965, 250, and 245A together requires careful coordination between Canadian and U.S. tax laws. Canadians with U.S. corporations or dual operations should review their company structure, income sources, and shareholder arrangements. Combining these rules effectively can help reduce double taxation, improve cash flow, and increase tax efficiency in both countries.

This is where U.S. and Canada financial planning becomes essential. Working with experts who understand both systems ensures that you comply with regulations and still benefit from available deductions. A proper cross-border tax strategy can help you decide when to repatriate profits, how to use deductions under Section 250, and whether your company qualifies for tax-free dividends under Section 245A.

For Canadians with U.S. business connections, the Sections 965, 250, and 245A rules may seem complicated, but they also open doors for smarter cross-border tax planning. These sections can help manage global income more effectively when used with a solid financial plan that considers both U.S. and Canadian rules. By working closely with qualified advisors, Canadians can navigate these laws confidently, reduce unnecessary taxes, and build a stronger cross-border financial foundation.