Dear SRC Members:
I hope you are all loving the warm weather, sinking long putts, and putting up some great scores out there. As always, I like to give you all an update on the markets, a performance update for our core strategies, and an update on Section 899:
It is always essential for long-term investors to remember that successful investing is about owning great businesses at reasonable prices — regardless of headlines, political cycles, payroll numbers, or economic forecasts. These companies have the financial strength and managerial expertise to adapt to the challenges of the day — and there are always challenges.
April served as a clear reminder that reacting emotionally to policy shifts or sensational headlines can be costly. The geopolitical environment at present is volatile, while trade negotiations between most countries and the U.S. have been chaotic and unpredictable — making it difficult for businesses and governments to plan for the future.
Investors should be prepared for this type of “on-again, off-again” policymaking and not be thrown off course by it. In today’s environment of heightened noise and constant hyperbole, the wisest course is to tune it all out and stay committed to a disciplined, long-term approach which has served us well for many years.
For full performance, please visit our website at: www.steinbergwealth.com
Section 899
The recent U.S. budget bill proposed by the White House — titled “The One Big Beautiful Bill” — included a provision, Section 899 (Enforcement of Remedies Against Unfair Foreign Taxes), which, if enacted, would have negatively impacted investors in countries deemed to impose “unfair” taxes on U.S. entities. On Wall Street and in Washington, this became known as the “Revenge Tax.”
Specifically, Canadian investors would have faced an increased withholding tax on dividends received from U.S. companies, raising concerns about whether it would still be worthwhile to hold U.S. equities. Under a “worst-case scenario,” returns on U.S. equities for Canadian investors would have been approximately 0.4% lower per year (assuming the maximum 20% rate was applied to a 2% dividend yield).
Fortunately, late in June, Republican senators agreed to remove the Revenge Tax provision after mounting pressure from Wall Street firms, who argued that Section 899 risked deterring significant foreign investment and ultimately harming U.S. companies.
At the time of writing, negotiations between Canada and the U.S. remain ongoing. While the recent removal of the Digital Services Tax — a major sticking point for the Trump Administration — appears to have put a trade and security deal back on track, investors should remain prepared for the possibility of future penalties on Canadian investors should negotiations break down.
Throughout the Section 899 uncertainty, our message has been clear: while a potential reduction in returns of around 0.4% is far from ideal, it is not reason enough to abandon some of the world’s best businesses, many of which may be domiciled in the U.S. but have substantial global revenues.
Administrations and policies come and go, but owning exceptional companies with durable competitive advantages, strong free cash flow generation, sustainable and growing dividends, and compelling long-term growth prospects remains a winning strategy.
Offer for Portfolio Review and Proposal:
If you are not 100% happy with your current results, or level of service, please reach out to me for a complimentary portfolio review and proposal. I can assure you that this is met with zero expectation or pressure. My hope is that you walk away with some clarity, and a handful of areas to reflect on that could improve your performance, tax efficiency, or decrease your management fees in a meaningful way.
Stay well, and enjoy a terrific summer on the golf course.
Liam Card, CIM
Co-President
Lorne Steinberg Wealth Management, Inc.
O: (416) 485-4747
36 Toronto Street, Suite 1140
Toronto, ON M5C 2C5