GILTI Is Now Net CFC Tested Income: Canadian Corporations

Yes, GILTI has a new name. Public Law 119-21 (July 4, 2025) renamed the section 951A inclusion “net CFC tested income,” removed the carve-out for a routine return on tangible assets, set the corporate deduction at 40 percent and raised the deemed-paid credit to 90 percent, all for tax years beginning after December 31, 2025. A 2025 year is still GILTI under the old rules. The wider reporting picture is in our guide to Form 5471 and the CFC rules for a Canadian corporation.

What changed when GILTI became net CFC tested income?

Three things moved for the inclusion itself, and two more for the credit and timing. The amendment notes to IRC 951A record that section 70323 “substituted ‘Net CFC tested income’ for ‘Global intangible low-taxed income’” and “struck out former subsec. (b) defining ‘global intangible low-taxed income’ and ‘net deemed tangible income return’,” plus the subsection on qualified business asset investment.

What that means in practice:

• No more routine-return carve-out. GILTI was net CFC tested income minus a net deemed tangible income return, 10 percent of the CFC’s qualified business asset investment (QBAI). With that subtraction struck out, the whole net tested income is included. A Canadian corporation with real equipment or buildings loses the shelter those assets used to give.
• The corporate deduction is 40 percent. IRC 250(a)(1)(B) now allows “40 percent of … the net CFC tested income amount” to a domestic corporation. Before the Act it was 50 percent, and prior law had already scheduled it to fall to 37.5 percent for years beginning after 2025, a schedule the Act struck out. Against what 2026 would have been, the percentage went up.
• The deemed-paid credit is 90 percent. Under IRC 960(d)(1), a domestic corporation is deemed to have paid foreign income taxes “equal to 90 percent of the product of” its inclusion percentage and the CFCs’ tested foreign income taxes. It was 80 percent.
• A new credit haircut on distributions. New IRC 960(d)(4) allows no section 901 credit “for 10 percent of any foreign income taxes paid or accrued” on a distribution of previously taxed net CFC tested income.
• Pro rata share timing. Section 70354 changed how the pro rata share is counted. A person is treated as a US shareholder if they own stock under section 958(a) “on any day in such taxable year,” for taxable years of foreign corporations beginning after December 31, 2025.

The foreign-derived companion deduction moved the same way: section 250(a)(1)(A) is now 33.34 percent of “foreign-derived deduction eligible income,” where prior law had scheduled 21.875 percent.

Do the changes apply to my 2025 return?

Mostly no. The rename, the QBAI removal and the 40 percent deduction apply to “taxable years beginning after Dec. 31, 2025” under the effective-date notes to IRC 951A and IRC 250. The 90 percent credit uses the same date. A tax year that began in 2025 still has GILTI, the QBAI return and the 50 percent deduction.

The exception is the 10 percent haircut in section 960(d)(4). Its effective-date note applies it to foreign income taxes “with respect to any amount excluded from gross income under section 959(a) of this title by reason of an inclusion in gross income under section 951A(a) of this title after June 28, 2025” (IRC 960, effective date of 2025 amendment). It isn’t tied to the tax-year boundary, so it can reach a 2025 year.

Provision	Tax year that began in 2025	Tax year beginning in 2026 or later
Name of the inclusion	Global intangible low-taxed income (GILTI)	Net CFC tested income
QBAI routine return	Subtracted: 10% of QBAI, net of certain interest	Struck out; nothing subtracted
Section 250 deduction (domestic corporations)	50%	40% (prior law had scheduled 37.5%)
Deemed-paid credit, section 960(d)(1)	80% of tested foreign income taxes	90%
Credit haircut on previously taxed distributions, 960(d)(4)	Can apply, per its own June 28, 2025 effective-date note	10% of the foreign taxes not creditable
US shareholder for pro rata share	Ownership on the last day the corporation is a CFC	Ownership on any day of the year (CFC years beginning after 2025)
High-tax exclusion by election	Available, above 18.9% effective rate	Same statutory hook and regulation

Does the GILTI high-tax exclusion protect a Canadian CCPC?

It depends on the corporation’s effective Canadian rate. Tested income excludes gross income that section 954(b)(4) keeps out of foreign base company income, and Treas. Reg. 1.951A-2(c)(7) lets an item qualify if an election is in effect and its effective foreign tax rate is “greater than 90 percent of the maximum rate of tax specified in section 11.”

IRC 11(b) sets that rate at 21 percent, so the line is 18.9 percent. The statutory hook survived the 2025 rewrite: 951A(b)(2)(A)(i)(III) still excludes income kept out “by reason of section 954(b)(4).” The regulation, current on eCFR, still cites the old paragraph number, 951A(c)(2)(A)(i)(III).

Now the Canadian side. The CRA’s corporation tax rates page puts the federal net rate at 9 percent for a CCPC claiming the small business deduction and 15 percent otherwise. Ontario’s rates are 3.2 percent and 11.5 percent. Combined, that’s 12.2 percent on small-business income and 26.5 percent on the rest. The first is under 18.9 percent, the second is over it.

Three rules from the regulation shape how this works in practice:

• It’s measured on the US numbers. The effective rate is foreign taxes divided by the tested income item “increased by the amount of foreign income taxes,” both in US dollars and computed under US rules. The Canadian statutory rate is a starting point, and a different US tax base can move it.
• It’s item by item. The rate is “determined separately for each such item,” so one corporation can have some income excluded and some not.
• It’s an election, and it binds everyone. The controlling domestic shareholders make it with a timely filed return (or an amended one), and it’s “binding on all United States shareholders of the controlled foreign corporation.” In a CFC group, it’s made for all members together.

Do I get the 40% deduction as an individual?

Not directly. Section 250 grants the deduction “in the case of a domestic corporation.” An individual US shareholder includes net CFC tested income at ordinary rates with no section 250 deduction, and the deemed-paid credit in section 960(d) is likewise written for a domestic corporation.

“In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of … 40 percent of … the net CFC tested income amount (if any) which is included in the gross income of such domestic corporation under section 951A” IRC 250(a)(1)

That gap is why the section 962 election comes up in every conversation about a Canadian corporation. Section 250 also caps the deduction at the corporation’s taxable income, under 250(a)(2).

What’s the section 962 election?

It’s an election by an individual US shareholder to be taxed on section 951(a) inclusions as if a domestic corporation had received them. Net CFC tested income is treated like a 951(a)(1)(A) amount for section 962 purposes under 951A(d)(1), so the election reaches it.

IRC 962(a) replaces the individual tax on those amounts with “the tax which would be imposed under section 11 if such amounts were received by a domestic corporation,” and for the foreign tax credit treats them “as if they were received by a domestic corporation.” The regulation goes further on the deduction. Treas. Reg. 1.962-1(b)(1)(i) lets the electing individual take the portion of the section 250 deduction “that would be allowed to a domestic corporation.” Like the high-tax regulation, it still uses the old GILTI wording.

The trade-off is in 962(d): when the earnings are later distributed, they’re taxed to the extent they exceed the US tax already paid under the election. An election for a year “may not be revoked except with the consent of the Secretary.” Our guide to the section 962 election walks through when it helps.

What should a US citizen with a CCPC check this year?

Start with the tax year, because it sets which rules apply. For a calendar-year CCPC owned by a calendar-year individual, 2026 is the first net CFC tested income year. If the corporation’s fiscal year doesn’t match yours, work out which year the change reaches before anything else: the main effective-date notes say only “taxable years beginning after Dec. 31, 2025,” while the pro rata share change expressly keys to the foreign corporation’s year.

Then work through these:

• The rate test. Is the corporation’s income taxed at the small-business rate, the general rate, or a mix? Model the effective rate on US numbers, item by item, against 18.9 percent.
• The high-tax election. It’s made on the return, binds every US shareholder and every CFC in the group, and can be revoked only in the manner the regulation sets. Decide it on purpose each year.
• The 962 election. Price it on the year’s facts, including the tax on later distributions under 962(d).
• Assets that used to help. If the corporation owns significant equipment or real estate, the QBAI return that reduced GILTI through 2025 is gone from 2026.
• Distributions. Dividends paid out of previously taxed amounts can hit the 960(d)(4) 10 percent credit haircut where the 951A inclusion came after June 28, 2025, which matters only where the credit applies.
• Form 5471. The inclusion is reported through it; see whether you file Form 5471 for your Canadian corporation.

Net CFC tested income doesn’t include Subpart F income, the older regime that catches passive income first, so a CCPC with an investment portfolio needs that analysis too. For what makes a corporation a CCPC in the first place, see our CCPC guide, and for everything else in the 2025 Act, the One Big Beautiful Bill guide.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.