GILTI Has a New Name: What the Renamed Regime Changes for a US Citizen's Canadian Corporation, and What Stays the Same

Short version: GILTI Explained for Owners of Canadian Corporations

The regime most Canadian corporation owners with US citizenship spend their filing seasons managing acquired a new name in 2025, and the rename came with substantive changes that shift the arithmetic without altering the structure. The rename: the legislation retitled "global intangible low-taxed income" as "net CFC tested income" (with the corresponding deduction for domestic corporations retitled from "foreign-derived intangible income" to "foreign-derived deduction eligible income"), abandoning the "intangible" framing that had never described the regime's actual reach — it always taxed a CFC's ordinary operating income above a deemed return, intangible or not. The substantive changes, effective for tax years beginning after December 31, 2025: the deemed return on qualified business asset investment (the 10% of tangible depreciable assets that was excluded from the inclusion) is eliminated, so the inclusion now equals net tested income without a tangible-asset carve-out — a change that matters for capital-intensive corporations (the Canadian manufacturer with a plant) and barely registers for service corporations (the consultant with a laptop); the deduction available to domestic corporate shareholders — and, through section 962, to electing individuals — is reduced from 50% to 40%, raising the effective corporate-level rate on inclusions from 10.5% to 12.6%; and the foreign tax credit allowance on the inclusion is increased from 80% to 90% of the CFC's attributable foreign taxes, partially offsetting the smaller deduction for corporations that pay meaningful foreign tax — which describes Canadian corporations, whose combined rates at either the small-business or general tier exceed the US inclusion rate. The net effect for a Canadian small-business-rate corporation under a section 962 election: the inclusion is taxed at a slightly higher pre-credit rate, but a larger share of the Canadian tax is creditable, and the two changes roughly offset for corporations paying Canadian tax in the 11-12% range — the current US tax after credit remains small, with the exact result depending on the corporation's Canadian effective rate as measured for US purposes. What did not change, and governs the annual work: the high-tax exclusion — tested income subject to foreign tax at an effective rate above 90% of the US corporate rate (18.9%) may be excluded by election — survives, which means Canadian corporations taxed at general rates (around 26.5% combined) continue to exclude their tested income entirely, and small-business-rate corporations continue to fail the test and include; the section 962 election remains the individual's route to corporate-rate treatment, now computing with the 40% deduction and 90% credit allowance; the Subpart F regime and its own high-tax exception are untouched; Form 5471 and its schedules continue, with Form 8992 (the inclusion computation) revised for the new arithmetic; previously-taxed-earnings tracking continues to prevent double taxation on distribution; and the Canadian side is entirely indifferent — Canada taxes the corporation and its dividends on its own rules, and the rename is a US labeling event. The estate and individual provisions of the same legislation touch the corridor elsewhere (the estate exemption changes, the individual rate structure, the standard deduction) and are covered in the legislation guide; the CFC changes are the corporate-owner's slice. Reading the new forms: the Form 8992 and Form 5471 Schedule I-1 for tax years beginning in 2026 carry the new terminology — "net CFC tested income" replaces "GILTI" throughout, the qualified-business-asset-investment lines disappear, and the deduction and credit percentages update — while prior-year forms and any carryforward computations retain the old terms, so a shareholder's file will speak two languages for several years. The advisory posture: re-run the section 962 model with the new percentages for tax years beginning in 2026 (the answer rarely flips, but the numbers move); confirm the high-tax exclusion analysis is unaffected (it is, at the same 18.9% threshold); and, for capital-intensive Canadian corporations, quantify the loss of the tangible-asset carve-out, which is the one change that raises inclusions materially for some owners.

Key takeaways

• The name: "global intangible low-taxed income" is now "net CFC tested income" (and FDII is "foreign-derived deduction eligible income") for tax years beginning after 2025 — a relabel of a regime that never really targeted intangibles.
• Three arithmetic changes: the 10% deemed return on tangible assets is gone (inclusions rise for capital-intensive corporations); the deduction falls from 50% to 40% (effective rate 10.5% → 12.6%); the foreign tax credit allowance rises from 80% to 90%.
• For Canadian corporations the changes roughly offset: a smaller deduction against a larger credit on Canadian tax that exceeds the US rate leaves the section 962 result close to where it was — re-run the model, don't assume.
• The high-tax exclusion is untouched: 18.9% threshold, elective, annually — general-rate Canadian corporations still exclude everything; small-business-rate corporations still include.
• The machinery survives: section 962, Form 5471 and Schedule I-1, Form 8992 (revised), previously-taxed-earnings tracking, Subpart F and its exception — same work, new labels.
• Canada doesn't care: the rename is a US event; Canadian corporate tax, dividend treatment, and treaty withholding are unchanged.

What to do this filing season

Pull last year's 962 model and rerun it with the 40% deduction and 90% credit allowance for the first tax year beginning in 2026; note the result and whether the election still wins (it usually does). Confirm the corporation's Canadian effective rate against the 18.9% exclusion threshold — nothing changed there. For corporations with significant tangible assets, compute the inclusion with and without the former tangible-asset carve-out to see what the change costs. Update the file's terminology so the 5471 and 8992 for the new year read consistently with the forms, and keep the prior-year carryforward computations in their original terms. An hour of updating, no structural change — unless the tangible-asset line was doing real work, in which case the number is worth knowing before the return is prepared.

Worked example

A dual citizen in Winnipeg owns a machining corporation — C$1.6 million of equipment, C$350,000 of tested income taxed at the small-business rate (about 11%). Under the old arithmetic: tested income less the 10% deemed return on the equipment (about C$160,000) gave an inclusion near C$190,000; under the 962 election, 50% deduction, 80% credit — current US tax after credit a few thousand dollars. Under the renamed regime for his 2026 year: no tangible-asset carve-out — the full C$350,000 is the inclusion; 40% deduction; 90% credit on the Canadian tax attributable. The rerun: a higher inclusion and a smaller deduction push the pre-credit US tax up materially; the larger credit allowance pulls it back part of the way; his current US tax after credit rises from a few thousand to the low five figures — a real change, driven almost entirely by the loss of the carve-out on his equipment, not by the rate tweaks. His planning response: the high-tax exclusion is re-checked (still failed at 11%), the section 962 election is still made (it remains far cheaper than individual rates), and the conversation turns to the Canadian side — whether the corporation's income mix or the small-business-deduction allocation can be structured so more of its income bears the general rate that passes the exclusion, which is where the actual lever now sits. His neighbor, a consultant with no equipment and the same tested income, reruns the model and sees the two rate changes nearly cancel: a few hundred dollars of difference, the election unchanged, the file's vocabulary updated. Same rename; the equipment made all the difference.

Official sources

"U.S. shareholders of controlled foreign corporations" use Form 8992 to "figure their global intangible low-taxed income inclusions under section 951A and its related regulations." — Internal Revenue Service, About Form 8992, https://www.irs.gov/forms-pubs/about-form-8992

"In general, a CFC is a foreign corporation that has U.S. shareholders that own (directly, indirectly, or constructively, within the meaning of section 958(a) and (b)) on any day of the tax year of the foreign corporation, more than 50% of: 1. The total combined voting power of all classes of its voting stock, or 2. The total value of the stock of the corporation." — Internal Revenue Service, Instructions for Form 5471, https://www.irs.gov/instructions/i5471

Practitioner note

The rename generated more client questions than the substance warranted — for most Canadian service corporations the smaller deduction and larger credit roughly cancel, the high-tax exclusion is untouched, and the 962 election still wins. The one change with teeth is the end of the tangible-asset carve-out, which raises inclusions for manufacturers and anyone with real equipment; our filing-season routine reruns every 962 model with the new percentages and quantifies that line specifically, because it is the only place the new law actually moved money.

See also: Browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the regime-update review — rerunning the section 962 model with the revised deduction and credit percentages, confirming the high-tax exclusion analysis, quantifying the tangible-asset carve-out's loss for capital-intensive corporations, and updating the Form 5471 and 8992 file for the new terminology. See cross-border pricing or book a call.