Was your business bracing for a major Digital Services Tax ("DST") payment on June 30, 2025? You're not alone – and you can breathe a sigh of relief. On June 29, 2025, the federal government announced its intention to rescind one of its more controversial tax policies: the DST. Originally announced in 2020, the DST imposes a 3% tax on revenue earned from certain digital services that rely on the engagement, data, and content contributions of Canadian users, as well as certain sales or licensing of Canadian user data. However, just before the first payments were due on June 30, 2025, the government announced it would no longer move forward with collecting the tax.
For businesses, both Canadian and foreign, that had already complied, this last-minute reversal leaves many questions. Below is a breakdown of what the DST is, why the government changed course, and what your business should consider next.
What is the DST?
The DST was designed to target large tech companies earning significant revenue from digital services provided to Canadian users, such as online marketplace services, online advertising services, social media services, as well as certain sales or licensing of Canadian user data ("Digital Services Revenue"). This was meant to address the fact that many large tech companies earning significant revenue from Canadian users might not otherwise pay tax on Digital Services Revenue generated from Canadians.
Canada's version of the DST applied retroactively to January 1, 2022, with the first tax payments due by June 30, 2025. This meant that any DST arising from Digital Services Revenue earned between January 1, 2022, and December 31, 2024, was due on June 30, 2025.
Any company that:
- generated Digital Services Revenue;
- generated at least €750 million in annual global revenue (alone or as a member of a consolidated group); and
- generated over CAN$20 million in annual Digital Services Revenue (alone or as a member of a consolidated group)
was required to register, calculate its liability, and pay the 3% DST.
Additionally, even if no DST was payable, companies were still required to register for a DST program account if they met the first two above-noted conditions and their Digital Services Revenue exceeded CAN$10 million.
Why the sudden change?
The short answer: international pressure – especially from the United States.
The U.S. government has long opposed Canada's DST, arguing that it unfairly targets American tech giants. In recent months, U.S. trade officials warned that unless Canada backed down, they were prepared to impose retaliatory tariffs on Canadian goods. With trade talks between the two countries stalled, Ottawa ultimately decided to pull the plug on the DST to get negotiations back on track.
What happens if you already filed or paid?
This is the big question facing many businesses right now. Some had already filed returns, set aside funds to pay their DST liability, hired advisors, built internal reporting systems, and budgeted for the tax.
While full details are still emerging, here's what we know:
- The Canada Revenue Agency (the "CRA") has paused collection: As of June 29, 2025, the CRAwill not require businesses to file a DST return or pay any DST-related amounts.
- Refunds may be coming: If legislation to rescind the Digital Services Tax Act (the "Act") is tabled in Parliament and receives royal assent, those who have already paid will have their payments returned.
What should your business do now?
If your business has already registered, filed, or paid the DST, here are a few practical next steps:
- Confirm your filing status: If you've already registered or submitted information to the CRA, stay alert for communications regarding your filing status, potential refunds, or deregistration processes.
- Keep your records: Even though the tax has been dropped, businesses that prepared DST filings should retain their documentation in relation to the filings. These records may be helpful in supporting refund claims.
- Track legislative developments: Legislation to rescind the Act still needs to be tabled in Parliament and receive royal assent to become law, so keep an eye on future developments.
Final thoughts
If your business was already geared up for the DST, this sudden reversal may feel frustrating. However, it also provides meaningful cost savings, as your business will no longer need to pay a retroactive tax on three years' worth of Digital Services Revenue, nor will it be liable for the tax going forward.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
