On June 20, 2024, Bill C-59 received royal assent enacting Canada's Digital Services Tax Act (DST Act). However, Bill C-59 set out that the DST Act would not come into force until a day that was fixed by order of the Governor in Council. The Governor General in Council fixed the day that the DST Act came into force as June 28, 2024. Accordingly, the DST Act now applies.
To whom does it apply?
The DST applies to large businesses, both foreign and domestic, that meet both of two revenue thresholds.
- Total revenue threshold – If a taxpayer or, if applicable, its consolidated group, earns total revenue from all sources of €750,000,000 or more in a fiscal year of the taxpayer or group that ends in a particular calendar year, the taxpayer or group would meet this threshold for the subsequent calendar year.
- Canadian in-scope revenue threshold - A taxpayer would meet this threshold for a calendar year if the taxpayer (or the taxpayer's consolidated group, if applicable) earns greater than CA$20,000,000of Canadian in-scope revenue in the calendar year. However, if a taxpayer earns more than CA$10,000,000 of Canadian in-scope revenue in the calendar year, it will still be required to register for the DST even if no DST is payable.
If a taxpayer is a member of a consolidated group, these thresholds would be calculated on a group basis.
To what does it apply?
The DST applies to four categories of in-scope revenues:
- Online marketplace services revenue – This would include revenue earned from the provision of access to or use of, the online marketplace, commissions from facilitating supplies between users of the online marketplace and revenue from providing premium services relating to the online marketplace. Revenue from selling one's own inventory is not subject to the DST.
- Online advertising services revenue – This includes revenue earned from facilitating the delivery of an online targeted advertisement and revenue earned from providing digital space for an online targeted advertisement. Contextual advertisements that are not targeted at users based on user data associated with the users, but rather are matched with content on the digital interface, would not meet the definition of "online targeted advertisement."
- Social media services revenue – This includes revenue earned from the provision of access to or use of, the social media platform, premium services and the facilitation of specific interactions between users or between users and user-generated content. If a social media platform earns revenue from providing access to its own digital content (rather than user-generated content), then such revenue would not be included in social media services revenue.
- User data revenue – This consists of revenue earned from the sale or licensing of data gathered from users of an online marketplace, a social media platform or an online search engine. If a taxpayer earns revenue from the sale or use of data that the taxpayer (or another group member) did not collect, the taxpayer would not be taxed on this revenue. Revenue from services reliant on user data such as consulting or business advisory services is not included and would be segregated from revenue from any sale of the underlying data.
If any revenue could be classified as both online marketplace services revenue and user data revenue, online advertising services revenue and user data revenue or social media services revenue and user data revenue or all four, it will only fall into one stream and thus cannot be taxed more than once under the DST Act.
Further information on the specific scope of these categories is set out in the Department of Finance's Explanatory Notes here.
What is the rate?
The DST applies at a rate of 3%.
When does it apply?
The DST will apply retroactively to in-scope revenues earned since January 1, 2022.
What must be reported?
The DST requires taxpayers that meet the DST thresholds and have an obligation to pay the 3% DST to file annual tax returns and pay any tax payable by June 30 of the year following the calendar year.
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