On 29 June 2025, the Canadian government announced that it will rescind the Digital Services Tax (DST), halting the 30 June collection of the DST for the 2022, 2023 and 2024 calendar years that was otherwise due on that date (for prior coverage, see the article in the July 2024 issue of Indirect Tax News). The 11th hour announcement was made in the context of the trade negotiations between Canada and the U.S. following President Trump’s abrupt cancellation of negotiations on 27 June.
The Canadian 3% DST, which became effective in 2024, but applies retroactively to 2022, targets both Canadian and nonresident businesses that earn more than CAD 20 million annually in digital services revenues from customers located in Canada. The first tax returns for in-scope entities must be filed on or before 30 June 2025, with substantial penalties for failure to comply. The Trump administration issued a directive on 21 February 2025 designed to protect U.S. companies—particularly tech companies—from foreign taxes (including DSTs), fines, penalties or any type of regulatory restriction that is deemed to be unfair to U.S. businesses (for prior coverage, see the tax alert dated 26 February 2025).
It is important to note that the removal of the DST should not be confused with Canada’s new federal requirement for certain digital platform operators to file information returns by 31 July 2025 in respect of their 2024 activities (for prior coverage, see the article in the January 2025 issue of Indirect Tax News). While the due date to file the federal information returns for the previous calendar year is 31 January, penalty and interest relief is provided for this first year of filing if the returns are filed by the end of July. Annual information returns are also required for digital platform operators with selected sales activities connected with the provinces of Quebec (1 July due date for the prior calendar year) and British Columbia (31 August due date for the prior 12 months ended 30 June).
It is expected that Canadian DST remitted by businesses will be available for refund to the extent that no other taxes are outstanding for the filing entity. It will also be interesting to see what this means for other countries that have implemented similar DSTs on large businesses with customers in their jurisdiction; recent press reports indicate that at least two countries with a DST (France and the UK) are standing by their taxes.
Trade negotiations between Canada and the U.S. are expected to resume shortly with the expectation of concluding a deal by 21 July 2025.
Brian Morcombe
Bruce Goudy
BDO in Canada
The Canadian 3% DST, which became effective in 2024, but applies retroactively to 2022, targets both Canadian and nonresident businesses that earn more than CAD 20 million annually in digital services revenues from customers located in Canada. The first tax returns for in-scope entities must be filed on or before 30 June 2025, with substantial penalties for failure to comply. The Trump administration issued a directive on 21 February 2025 designed to protect U.S. companies—particularly tech companies—from foreign taxes (including DSTs), fines, penalties or any type of regulatory restriction that is deemed to be unfair to U.S. businesses (for prior coverage, see the tax alert dated 26 February 2025).
It is important to note that the removal of the DST should not be confused with Canada’s new federal requirement for certain digital platform operators to file information returns by 31 July 2025 in respect of their 2024 activities (for prior coverage, see the article in the January 2025 issue of Indirect Tax News). While the due date to file the federal information returns for the previous calendar year is 31 January, penalty and interest relief is provided for this first year of filing if the returns are filed by the end of July. Annual information returns are also required for digital platform operators with selected sales activities connected with the provinces of Quebec (1 July due date for the prior calendar year) and British Columbia (31 August due date for the prior 12 months ended 30 June).
BDO Insight
It is expected that Canadian DST remitted by businesses will be available for refund to the extent that no other taxes are outstanding for the filing entity. It will also be interesting to see what this means for other countries that have implemented similar DSTs on large businesses with customers in their jurisdiction; recent press reports indicate that at least two countries with a DST (France and the UK) are standing by their taxes.Trade negotiations between Canada and the U.S. are expected to resume shortly with the expectation of concluding a deal by 21 July 2025.
Brian Morcombe
Bruce Goudy
BDO in Canada