Canada's Unilateral Digital Services Tax Forges Ahead With Retroactive Effect

Key takeaways

• A 3 per cent tax now applies to in-scope Canadian digital service revenues.
• Starting in 2025, certain taxpayers will have new Canadian tax registration, reporting and remittance obligations in respect of revenues earned back to Jan. 1, 2022.
• Impacted businesses should be aware of registration and reporting obligations that exists independent of the tax.
• The Digital Services Tax Act (DSTA) may face domestic and international challenges that could impact its final form of application.
• Canadian consumers of digital services are likely to see tax costs passed on in the form of higher user fees.

The DSTA in force

The Canadian government has enacted legislation to impose a Digital Services Tax (DST) on Canadian digital service revenue with retroactive effect. Beginning in 2025, select taxpayers will have reporting and remittance obligations in respect of in-scope revenue earned back to Jan. 1, 2022.