In August 2023, the Department of Finance released its draft of the Digital Services Tax Act (DSTA) with the intent to introduce legislation aiming to tax certain large domestic (and foreign) businesses on their Canadian digital services revenue.
On June 20, 2024, the Digital Services Tax (DST) received Royal Assent with the passing of Bill C‑59, Fall Economic Statement Implementation Act, 2023, with the earliest date this measure can take effect being retroactive to Jan. 1, 2022.
What is digital services revenue?
Determining if DST applies to your business activities can be challenging, as the various streams of revenue subject to this new tax are defined by the Canada Revenue Agency (CRA) in the broadest possible way.
Let’s begin by defining a large business as it relates to the DST. This is a business, either independently or as a member of a consolidated group, having total revenue from all sources exceeding €750 million and generating at least $20 million of “In‑Scope” Canadian revenue.
The DST will apply at a rate of three per cent on certain revenue earned by large businesses in excess of $20 million CDN in a calendar year. In‑Scope revenue includes:
- Online marketplace services,
- Online advertising services,
- Social media services, and
- User data
Online marketplace services revenue consists of revenue earned from providing an online marketplace that helps match sellers of goods and services with potential buyers.
Online advertising services revenue would consist of revenue earned from services aimed at placing online targeted advertisements. This would include revenue earned from facilitating the delivery of online targeted advertisements and revenue earned from providing digital space for such advertisements.
Social media services revenue would consist of revenue earned from providing a social media platform facilitating interactions between users, or between users and user‑generated content. This would include 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. It would not include revenue from providing private communication services (e.g., video calls, voice calls, emails and instant messaging) if the sole purpose of the platform is to provide such services.
Finally, user data revenue would consist of revenue earned from the sale or licensing of data gathered from users of an online marketplace, social media platform or online search engine.
Implications
Businesses meeting the €750 million threshold and earning more than $10 million CDN of Canadian digital services revenue must register for the DST. It is important to note the registration threshold is lower than the taxation threshold. The taxpayer must register by Jan. 31 of the following calendar year.
If your business is part of a consolidated group and earned more than €750 million in global revenue and your Canadian In‑Scope revenue exceeded the $20 million mark, a detailed analysis is required to determine your DST obligations.
Help is here
For assistance with preparing a detailed analysis or any questions you may have regarding the DST and its implementation, contact Sameer Noormohamed or Mark Bloch at Baker Tilly Windsor today.
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