New Digital Services Tax Act – Introduction
On 28 June 2024, the Digital Services Tax Act (DSTA) officially came into effect following an Order in Council (OIC) issued that same day.
The DSTA was enacted by Parliament as part of Bill C-59 on June 20, 2024.
Implementation Details
Bill C-59 stipulated that the DSTA, along with its accompanying regulations and any related amendments, would come into force on a date determined by the Governor in Council.
The OIC was issued on 28 June 2024 but was only made available online on the 3 July.
Typically, Orders in Council are posted within three business days and later published in the Royal Gazette.
Overview of the Digital Services Tax
The DSTA introduces a 3% tax on certain types of revenue, specifically from “online marketplace services,” “online advertising services,” “social media services,” and “user data,” as defined within the Act.
This tax applies to both individual entities and consolidated groups that generate more than €750 million in global revenue.
An annual deduction of $20 million is available to be shared proportionately among entities within a consolidated group, meaning that the 3% tax is levied on applicable revenue exceeding $20 million.
The tax is retroactive, covering revenue from 1 January 2022, through the end of 2024, with the first payment and return due on June 30, 2025.
Entities with $10 million or more of in-scope revenue must register under the DSTA by January 31, 2025, provided they also meet the €750 million global revenue threshold.
For more details on the DST, then please see our separate FAQs on the tax.
Regulatory Flexibility
Many essential elements of the DSTA are contained within its regulations, granting the government the flexibility to make significant adjustments, such as modifying the tax rate or removing retroactive application to 2022, without requiring parliamentary approval.
This could be a strategic response to potential retaliatory tariffs or other measures from the United States, which has raised concerns about the discriminatory nature of the DSTA.
Conclusion
The implementation of the Digital Services Tax Act marks a significant step in taxing digital economy revenues.
With its retroactive application and broad scope, the DSTA could face challenges and adjustments in the near future, particularly in response to international reactions.
Final thoughts
if you have any queries about this article on the New Digital Services Tax Act in Canada, or Canadian tax matters more generally, then please get in touch.