Digital Services Tax Act Comes into Force

Summary#

The Order brings the Digital Services Tax Act (enacted as part of the Fall Economic Statement Implementation Act, 2023) into force on the day the Order was made: June 28, 2024. For its first year, the tax will apply to in-scope revenues earned back to January 1, 2022.

What it does#

• Brings the Digital Services Tax Act into force on June 28, 2024.
• Creates a tax of 3% on certain revenues from digital services that rely on user data and contributions.
• Covers, in the first year, revenues earned since January 1, 2022 (because the first year is the calendar year that includes the day the Act comes into force).
• Applies to businesses (both Canadian residents and non-residents) that meet specified revenue thresholds. The Order does not list those thresholds.
• Targets main revenue categories described by the government: online targeted advertising, online marketplaces, social media platform fees, and the sale or licensing of user data.

Who's affected#

• Large digital companies and multinational firms that provide advertising, marketplaces, social platforms, or sell user data and that meet the revenue thresholds.
• Both Canadian and foreign businesses that earn the targeted kinds of digital revenues from users in Canada.
• Indirectly, users and customers could notice changes if companies alter prices, services, or how they collect or use data (the Order does not predict exact business responses).
• Department of Finance Canada is the federal department responsible for the tax and its administration.

Why it matters#

• The tax is expected to raise $2.3 billion in 2024–2025 (reflecting revenues from 2022–2024) and about $900 million annually after that, according to the government.
• The government allocated $24 million for start-up costs over two years and $4 million per year ongoing to administer the tax.
• This is an interim national measure while Canada continues to pursue a multilateral solution through the OECD/G20 Inclusive Framework and Pillar One negotiations. The Order notes those international talks remain uncertain, which is why Canada moved ahead now.
• It could change how digital businesses operate in Canada, and it may affect negotiations and tax rules that apply across countries.