Canada Digital Services Tax: What You Need to Know.

Date July 29, 2024
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Canada’s Digital Services Tax (DST), a provision of the Canadian Fall Economic Statement Implementation Act 2023, which went into effect June 28, 2024, imposes a 3 percent tax on Canadian-source digital services revenue earned by large domestic and foreign taxpayers. The tax is levied on in-scope Canadian digital services revenue and includes online marketplace services revenue, online advertising services revenue, social media services revenue, and user data revenue. Revenue from user data obtained from an online search engine is also considered in-scope for DST purposes, as are revenue from facilitating the delivery of online targeted advertisements and providing premium services relating to online marketplaces and social media platforms.

The Act applies retroactively to in-scope revenues earned since January 1, 2022, and its application is dependent on the treaty implementing the Pillar One tax regime under the multilateral approach. The DST is effective for calendar year 2024, although taxable Canadian digital services revenue for the first year of applicability also includes revenue from the calendar years 2022 and 2023 if relevant conditions are met for those years. The government has expressed a strong preference for a multilateral approach to addressing tax challenges in the digital economy, and is actively participating in international negotiations within the OECD/G20 Inclusive Framework.

The DST payment and return deadline is June 30 of the following year, which means initial payments and returns for calendar years 2022 through 2024 are due by June 30, 2025. When determining the amount of DST due, a standard deduction amount of 20 million Canadian dollars should be applied per calendar year. Taxpayers are also required to register for DST by January 31 of the following year (i.e., the initial registration deadline is January 31, 2025) if their Canadian digital services revenue is greater than zero and the global revenue threshold of 750 million Euro condition is met. Note that the in-scope revenue threshold for registration is 10 million Canadian dollars.

The tax payable is due by the specified deadline, and taxpayers must comply with the filing requirements to avoid penalties and interest.

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