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Canada’s new Digital Services Tax Act is now in force

Canadas new digital tax service

After the measures received Royal Assent on June 20, 2024, Canada’s Governor in Council set June 28, 2024 as the date for the DST to go into effect. This was the last step in enacting the new tax. On July 3, 2024, the order setting the effective date was published.

What is Digital Services Tax (DST)?

A Digital Services Tax (DST) is a tax charged on the profits earned by multinational corporations from particular digital services they offer. Data-driven online platforms, digital marketplaces, and digital advertising are common examples of these services.

A DST aims to more efficiently tax the digital economy and make sure that big, frequently international technology companies pay their fair share of taxes in the nations where they generate substantial profits.

What is the rate?

The rate of the DST is 3%.

To whom does it apply?

Large domestic and international companies that meet both revenue thresholds are subject to the DST.

  • Total revenue threshold

If a taxpayer or, if applicable, its consolidated group receives €750,000,000 or more in total revenue from all sources during a fiscal year that concludes in a given calendar year, the taxpayer or group will be considered to have met this threshold for the following calendar year.

  • Canadian in-scope revenue threshold

If taxpayers make more than CA$ 20,000,000 in Canadian in-scope revenue in a given calendar year, they will be considered to have met this threshold for that year. Even in cases where no DST is payable, a taxpayer must register for the DST if their Canadian in-scope revenue exceeds CA$ 10,000,000 for the calendar year.

When does it apply?

For in-scope revenues earned after January 1, 2022, the DST will be applied retroactively.

To what does it apply?

Online marketplace services revenue

The previously mentioned sources of income include commissions from facilitating transactions between users of the online marketplace, income from offering premium services associated with the online marketplace, and income from granting access to or using the marketplace.

Online advertising services revenue

This comprises the money made from enabling the online targeted advertisement to be delivered and the money made from renting out digital space for the online targeted advertisement.

Social media services revenue

This covers the money made from charging for premium services, granting access to or using the social media platform, and facilitating particular user interactions or interactions between users and user-generated content.

User data revenue

This includes money made from the sale or licensing of user-provided data from social media sites, online search engines, and marketplaces.

What Compliance Obligations Apply?

If a business fulfills the following requirements in a given calendar year, the taxpayer must register under the Digital Services Tax Act (DTSA).

(i) a revenue threshold exceeding €750 million globally

(ii) a revenue exceeding C$10 million from digital services.

Failure to register can result in penalties for taxpayers of up to C$20,000 annually. Companies must file an annual return by June 30 of the following year, at the latest, if they are subject to DST for that particular calendar year.

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