Is your business ready for Canada’s Digital Services Tax?

Co-authored by Summer Law Student Shira Gerstein

Canada’s digital clock has finally struck midnight. On June 28, 2024, the Digital Services Tax Act (“DSTA”) came into force by Order-in-Council, following the Royal Assent of its enacting legislation the previous week. Shortly thereafter, the Department of Finance released an updated version of the DSTA’s explanatory notes (the "Notes”) available here. The revised Notes contain updated guidance to reflect changes to the DSTA since the previous Draft was released in 2023, as well as new examples illustrating the DSTA’s intended application to certain businesses.

Taxpayers that find themselves in the DSTA’s scope are required to apply to register with the Canada Revenue Agency (“CRA”) by January 31, 2025. Digital services tax (“DST”) for calendar years 2022, 2023, and 2024 will be payable by June 30, 2025. Businesses that earn revenue from online platforms should carefully review the legislation in the coming months to avoid any unexpected pitfalls.

The high-level details of the DST are covered in our previous update here. In this article, we take a closer look at Canada’s DST to help taxpayers assess whether they’ll fall within its scope.

Who is Caught by Canada’s DST? A Step-by-Step Guide

1.      Step 1: Do I meet the €750 million global revenue threshold?

2.     Step 2: Do I earn any revenue that could be taxable under the DST?

3.     Step 3: Do I earn “Canadian online marketplace services revenue”?

3.1       Do I have an online marketplace?

3.2       Do I earn “online marketplace services revenue”?

3.3       Does this revenue have a nexus with Canada?

4.     Step 4: Do I earn “Canadian Online Advertising Services Revenue”?

4.1       Am I placing or transmitting online targeted advisements?

4.2       Do I earn “Online Advertising Services Revenue” from those advertisements?

4.3       Does this revenue have a nexus with Canada?

5.     Step 5: Do I earn “Canadian social media services revenue”?

5.1       Do I have a social media platform?

5.2       Do I earn social media services revenue from that platform?

5.3       Does this revenue have a nexus with Canada?

6.     Step 6: Do I earn "Canadian user data revenue"?

6.1       Do I collect in-scope user data?

6.2       Do I earn user data revenue?

6.3       Does this revenue have a nexus with Canada?

7.     Step 7: Am I required to register with the Canada Revenue Agency?

8.     Step 8: Is my Canadian digital services revenue above the $20,000,000 threshold?

Step 1:  Do I meet the €750 million global revenue threshold?

The DST applies to a taxpayer for a given calendar year if, during a fiscal year that ended in the immediately preceding calendar year, it earns at least €750 million in “total revenue” from all sources globally, on its own or as part of a consolidated group.^[1] This determination relies on accounting principles, but taxpayers should be mindful of certain details in the legislation that may impact whether they meet this threshold.

Generally, total revenue under the DSTA is defined as group revenue reflected in consolidated financial statements prepared under “acceptable accounting principles” (generally defined as IFRS or a country-specific GAAP similar to IFRS).^[2]

For purposes of the DST, a consolidated group is generally an ultimate parent entity and the entities with which it is required to report financial results using consolidated financial statements under “acceptable accounting principles.”^[3]  This definition also includes a group of entities required to prepare consolidated financial statements if their ultimate parent was or is a publicly-traded entity required to use acceptable accounting principles. An entity is also considered a constituent entity of a consolidated group if it is excluded from the group’s consolidated financial statements solely for size or materiality reasons, or on the grounds that it is held for sale.^[4]

Taxpayers that express revenue in currencies other than Euros will need to convert that revenue to Euros for purposes of the €750 million threshold. Under the DSTA, this is done using “a rate of exchange that is acceptable to the Minister (of National Revenue).”^[5] While it is unclear what the CRA will ultimately consider to be an acceptable exchange rate for these purposes, existing guidance on exchange rates suggests it may accept a rate quoted by the Bank of Canada or from a widely accepted independent source.^[6] Many accounting principles like IFRS contain rules for currency conversion that may also be relevant to this determination given the DSTA’s reliance on these principles in its definition of revenue.^[7]

This “global revenue threshold” of €750 million is currently defined in the Regulations to the DSTA, rather than the statute itself. In practice, this means it could be raised or lowered without the Government needing to pass new legislation in Parliament. This reflects a shift from earlier drafts of the DSTA, in which the €750 million threshold was woven directly into the legislation itself. Similar changes were also made to the in-scope revenue threshold used to calculate taxable revenue for the DST (currently C$20,000,000) as well as the DST rate itself (currently 3 per cent).

These changes give the Government more flexibility over key aspects of the DST. It is uncertain whether this flexibility was introduced as a potential alleviating measure or whether it will ultimately be used. However, it may become relevant in potential negotiations with the U.S. concerning the DST’s impact on the Canada-U.S. trade relationship. The U.S. has opposed unilateral DSTs introduced by several countries, including Canada, claiming they are subject to trade action under U.S. law because they are “discriminatory and burden U.S. commerce.”

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Step 2: Do I earn any revenue that could be taxable under the DST?

Canada’s DST may apply to a wider range of businesses than you think.

In general, any taxpayer that meets the group revenue threshold and earns revenue connected to online activities with a Canadian nexus should carefully assess whether that revenue falls within the DSTA’s scope. Many of the terms used throughout the DSTA to determine whether revenue is taxable like “digital interface,” “online marketplace” or “user data” are defined broadly. Since the DST is a tax on gross receipts from certain items of revenue, low-margin or loss businesses may also be subject to the DST.

Canada’s DST is structured as a 3 per cent tax on the taxable portion of “Canadian digital services revenue”, defined as the sum of a taxpayer’s Canadian revenue from four sources: (1) online marketplace, (2) digital advertising, (3) social media services, and (4) user data. Each is discussed in greater detail below. Taxpayers familiar with the DSTs in other countries should be mindful that these revenue streams are unique to Canada’s DST and do not always align with those found in other DSTs. For example, the UK’s DST imposes a tax on revenue from “search engines” but does not have a general category for digital advertising like Canada’s DST.

Businesses with an online or digital presence that do not think of themselves as providing “digital services” should still consult the DSTA and its Notes to assess whether their revenue is subject to the DST. The DST could pose significant interpretive and compliance challenges for some taxpayers due to the lack of CRA guidance and judicial interpretation of the terms and concepts it has introduced. Additionally, each of the four taxable revenue streams uses a slightly different method to assess the nexus between revenue sources and Canada, which may present further compliance challenges.

Example: Consider a multinational group in the agri-food sector. The group earns over €750 million in annual revenue from global sales of farm equipment and fertilizer that it manufactures. The group markets its business to consumers as an agricultural supplies company and does not consider itself a tech company. However, the group also earns a small portion of its revenue from certain ancillary activities: A subsidiary in the group operates an industry-specific news website where it sells ad space through an intermediary that places targeted ads. The subsidiary receives a portion of the ad revenue collected by the intermediary. A separate subsidiary operates a website by which it facilitates the rental by owners of their farm equipment, for which it collects a commission. A marketing subsidiary operates a website through which it sells its own supplies of farm equipment as well as related goods and services from third-party suppliers through an online platform. The subsidiary earns a commission from third-party sales and from selling premium memberships that entitle customers to special deals.

Although the group does not consider itself a “tech company,” each of these activities may give rise to obligations under the DSTA if the revenue they generate has a connection to Canada. Businesses in any industry that earn revenue from online activities with some connection to Canada should carefully review the rules to determine their new obligations.

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Step 3: Do I earn “Canadian online marketplace services revenue”?

A taxpayer will generally have “Canadian online marketplace services revenue” under the DST if (1) it has an “online marketplace” (alone or through another constituent entity in its group) from which it (2) earns revenue through fees or commissions and (3) that revenue has some nexus with Canada.

3.1 Do I have an online marketplace?

Generally, an “online marketplace” is a (1) digital interface that (2) enables users to interact with other users and (3) facilitates the supply of property or services between those users, subject to certain exceptions.^[8] The term “user” under the DST is defined broadly to include “an individual or an entity that interacts, directly or indirectly in any manner whatever, with a digital interface.”^[9] The Notes clarify that a digital interface can still be an online marketplace if it is a business where users connect online but a sale is ultimately concluded in-person.^[10]

An “online marketplace” excludes (1) interfaces with a single supplier and (2) certain payment or financial intermediation services.^[11] Since the online marketplace definition relies on broad concepts like the facilitation of a supply between users, it is important for businesses to understand the scope of these two exceptions.

The Notes clarify that the “website of a traditional retailer that sells its products directly to customers would have a single supplier and thus would not be an online marketplace.”^[12] Retail businesses should carefully assess their online platforms to determine whether they fall within this exception or whether they could be considered to facilitate supplies between users; for example, by connecting consumers with third-party sellers.

The exception for payment or financial intermediation services would apply to credit card processors, credit providers and most investment trading platforms that supply “financial instruments.”^[13] The definition of financial instrument in the DST is generally quite broad; including most widely-traded securities, money, most cryptocurrencies, and certain derivatives. However, it does not include digital stores of value that are “primarily for use within, or as part of, a gaming platform, an affinity or rewards program or a similar platform or program.”^[14] As such, digital interfaces that facilitate the supply between users of online tokens or similar digital stores of value may still be considered an “online marketplace.”

Example: A company operates a website that allows businesses to purchase products or services in bulk from third-party suppliers around the world (e.g., manufacturers or distributors). Although the website is not a consumer-facing platform and represents an intermediate step in the supply chain, it would likely meet the definition of an “online marketplace” because both the buyers and suppliers are third-party “users” that are connected through the platform.

3.2 Do I earn “online marketplace services revenue”?

Not all revenue connected with an online marketplace is subject to the DST.

Revenue in respect of an online marketplace is only included in the calculation of CDSR if it is earned from:

• Subscription or pay-per-use fees or similar fees to access the online marketplace.
• Transaction commissions, payment service fees or similar fees (whether bundled or unbundled).
• Revenue from providing premium services, preferential listing services, or similar services like optional enhancements or changes to the standard commercial terms of the online marketplace.[15]

Reasonable fees from storage or shipping services (including the delivery of food) and revenue from another member of a taxpayer’s group are excluded from online marketplace revenue.^[16]

According to the Notes, the “premium services” component of online marketplace revenue would include fees paid to access loyalty rewards such as “special deals, early product access, loyalty points, enhanced interface functionality, and other similar premium services.”^[17]

Determining the extent to which certain items of revenue are “in respect of an online marketplace” may be challenging in some cases.^[18] When should certain items of revenue with only a partial or indirect connection to an online marketplace be included in “online marketplace revenue”? Two examples in the Notes provide helpful guidance on this point.

Certain taxpayers may have a digital interface that generates both in-scope and out-of-scope revenue (e.g., through in-scope commissions on third-party sales and out-of-scope revenues from the sale of its own inventory). For these kinds of business models, the Notes suggest that items of revenue like subscription fees that are charged in respect of the entire marketplace “must be unbundled and reasonably allocated between the in-scope revenue…and the out-of-scope revenue.”^[19]

Loyalty rewards programs present even more challenges. The most recent version of the Notes contains a new example involving a company that earns revenue from credit card companies in exchange for issuing loyalty points to customers.^[20] Those points can then be redeemed for third-party goods and services, and the cost to the supplier is reimbursed by the company. The revenue received from credit card companies is not recognized under accounting principles until the points are redeemed. The points are redeemed on an “online marketplace” and the revenue is recognized at that time, but the revenue is not earned from that online marketplace in the first place. In this case, the Notes suggest that splitting the revenue 50/50 to reflect the fact that only one of the two “performance obligations” is in respect of an online marketplace may be appropriate.

Despite this helpful guidance, determining the appropriate allocation of an item of revenue to an online marketplace is “factual in nature”^[21] and will likely be a challenging exercise for many taxpayers whose business models don’t perfectly align with the examples in the Notes.

Example: A company operates a loyalty rewards program. Customers earn loyalty rewards points from online purchases of goods and services offered by both the company itself and third parties. The points can be redeemed on the company’s website for discounts on purchases of all goods sold on the website, including those by third parties. Consistently with accounting principles, when goods are sold for $100, the company allocates $98 to the sale of the goods and $2 to the loyalty points to reflect the fact that there are separate performance obligations in respect of each. In this case, the company likely operates an “online marketplace” and revenue from facilitating third-party sales would likely be included in “online marketplace revenue.” However, the DST treatment of loyalty points revenue is more complex. The Notes indicate that allocating loyalty points revenue to an online marketplace is fact-driven and that “a portion of the revenue in respect of [a] redemption [of points on an online marketplace] should be considered to be ‘online marketplace services revenue’ as a fee for facilitating a supply between users.” The Notes also indicate that if there are multiple performance obligations associated with an item of revenue, taxpayers can include only a portion of the revenue in “online marketplace revenue” if some performance obligations are unrelated to an online marketplace. This may be a challenging exercise. For example, it is not necessarily clear how the company should treat the $2 booked as loyalty points on the sale of $100 in the company’s own goods, given that the points may be redeemed on an online marketplace for a discount on third-party goods, or vice versa.

3.3 Does this revenue have a nexus with Canada?

Whether “online marketplace services revenue” is included in a taxpayer’s CDSR depends on its nexus with Canada.^[22] For these purposes, the nexus with Canada can be any one of the following:

1. Revenue in respect of the supply of a service (e.g., a commission fee) with a “direct physical impact in Canada”^[23] because it is either:
   • Physically performed and received in Canada (e.g., a car ride or food delivery).
   • In respect of real property situated in Canada (e.g., short-term accommodation).
   • In respect of tangible personal property situated in Canada (e.g., car sharing, canoe rentals, furniture assembly services).^[24]
2. Revenue in respect of a specific transaction (e.g., a commission fee) for which at least one of the supplier and purchaser is a “user located in Canada” (e.g., sale of a physical product).^[25]
3. Non-transaction-specific revenue (e.g., subscription fees) in respect of an online platform on which some percentage of either suppliers or purchasers whose location can be determined are “users located in Canada.”^[26]

A user is considered to be “located in Canada” for these purposes if it is reasonable to conclude that they are “normally located in Canada.”  The Notes indicate that the “reasonableness” of this determination is assessed based on data available to the taxpayer in the normal course of business.^[27] This data may include addresses, telephone area codes, GPS data, or IP addresses. According to the Notes, “data such as the user’s current billing address or phone number area code may be used to establish the user’s normal location”, which will normally be where the user resides.^[28]

Taxpayers earning online marketplace services revenue with a Canadian nexus as described above should consult the legislation’s specific calculation rules to determine what amounts are ultimately included in its CDSR.^[29] 

Under the legislation, taxpayers will generally earn “Canadian online advertising services revenue” if they: (1) place on or transmit an “online targeted advertisement” through a digital interface, (2) earn revenue from that ad through either facilitating its delivery or supplying digital space for it, and (3) that ad was associated with users in Canada.^[30]

4.1 Am I placing or transmitting online targeted advisements?

The definition of "online targeted advertisements" refers to an advertisement consisting of digital content^[31] placed on or transmitted through a digital interface, and targeted at users based on associated user data.^[32] The Notes clarify that this includes “any content prominently placed for promotional purposes,” such as sponsored content and preferential placements.

The Notes provide the following non-exhaustive list of “advertisements” for DST purposes:

• Display advertisements
• Rich media advertising
• Video advertising
• Political campaign advertising
• Public notices
• Promotions^[33]

A “targeted” ad is intended to have its “common industry meaning, including things like:

• Demographic targeting: Based on factors like age, gender, income, and nationality.
• Geographic targeting: Based on user location data, such as profile information, IP address, or GPS data.
• Behavioral and interest-based targeting: Based on user behavior or interests, such as browsing history, purchase history, or search history.
• Time targeting: Based on user access history, targeting specific times and dates.
• Re-targeting: Showing users content they've previously seen, based on browsing or purchase history.^[34]

“Contextual advertisements” that match content on the digital interface and are not based on user data do not meet the definition of "online targeted advertisement."

4.2 Do I earn “Online Advertising Services Revenue” from those advertisements?

Two kinds of revenue from online targeted ads can ultimately fall within the DST’s scope. Taxpayers will have “online advertising services revenue” either by facilitating the delivery of an online targeted ad or supplying digital space for it.^[35]

Revenue earned from “facilitating the delivery” of an ad appears to be focused on advertising technology intermediaries such as supply-side platforms, demand side platforms, advertising exchanges, and advertising servers.^[36] Revenue earned from providing digital space for an online targeted ad would include the revenue a website owner earns from allowing targeted ads to appear on their website.^[37]

To avoid counting the same revenue multiple times, intra-group payments and certain amounts paid to intermediaries between the publisher and marketer of an online targeted ad are excluded from “online advertising services revenue”, such that a single item of ad revenue from a marketer would be counted only once and not each time it passes between members of the same group or intermediaries.^[38]

4.3 Does this revenue have a nexus with Canada?

The extent to which “online advertising services revenue” has a nexus with Canada is measured by its association with “users located in Canada.”^[39] This nexus is established in one of two ways.

First, an item of revenue may be subject to the DST if it can be directly attributable to displaying an online targeted ad to a user located in Canada at the time of display or interaction.^[40]

Second, if revenue relates to a specific online targeted ad where the revenue is not directly connected with a specific user (i.e., non-traceable), DST may still apply. If a percentage of all users shown that ad whose location can be determined are in Canada, DST can apply to the matching percentage of the revenue from that ad.^[41] This includes revenue from displaying an ad to many users using flat-rate pricing and revenue generated by a specific user whose location can’t be determined.^[42]

If the targeted ad in question is targeted based on the real-time location of a user, whether a user is “located in Canada” is measured with reference to that user’s real-time location.^[43] The Notes clarify that for a user to be “located in Canada” for these purposes, data should indicate that the user is, at the time of the display or interaction, located in Canada (i.e., a real-time location). An example is provided in the Notes of a user’s smartphone that displays an advertisement for a restaurant when the smartphone’s navigation data indicates that the user is within the vicinity of the restaurant.^[44] Otherwise, a “user located in Canada” is measured the same way as for the calculation of Canadian online marketplace revenue (i.e., where the user is “normally located”).

Taxpayers that earn Canadian online advertising services revenue should consult the DSTA for detailed calculation rules.

5.1 Do I have a social media platform?

Unlike with an online marketplace or online targeted ad, the determination of whether a taxpayer has a “social media platform” contains a purpose test that arguably narrows its scope. Under the DSTA, a “social media platform” is a digital interface whose main purpose is to allow users to find and interact with other users or user-generated content.^[46]

If a digital interface allows users to find and interact with other users or user-generated content only as a secondary or incidental purpose to some other purpose, it will not be considered a “social media platform.” The Notes provide an example of an online gaming platform with an interactive component that allows users to find and interact with other users or user-generated content. If the “main purpose” of the game is to provide a game-world rather than the interactive component, it would not be considered a social media platform.^[47]

A platform used exclusively by a business's employees to interact with each other does not qualify as a “social media platform.” This is because the definition of “user” considers all employees of an entity as a single user. Since there are no “other users” to interact with, the platform would fail the purpose test.^[48]

For the purposes of calculating Canadian social media services revenue, a taxpayer’s revenue can be generated from its own platform or that of another constituent entity in its consolidated group.^[49]

5.2 Do I earn social media services revenue from that platform?

The types of revenue that are considered “social media services revenue” for DST purposes are limited to revenue from three specific activities:^[50]

• Providing access to or use of a social media platform (e.g., subscription fees or pay-per-use fees).
• Providing premium services and other optional enhancements (e.g., premium membership fees that would, for example, allow premium members to see who has viewed their profile).
• Facilitating an interaction between users or between a user and digital content generated by other users on the social media platform (such as fees for seeing restricted-access content).

Excluded are revenue from intra-group payments that are repeated and revenue from providing private communication services like instant messaging or calling, if the “sole purpose” of the platform is to provide those services.^[51]

5.3 Does this revenue have a nexus with Canada?

Social media services revenue may be subject to the DST if a social media account in respect of the social media platform is accessed at any time during a calendar year by a “user located in Canada.”⁵²

For these purposes, a “user located in Canada” is measured the same way as for the calculation of Canadian online marketplace revenue (i.e., where the user is normally located).

Taxpayers that earn Canadian social media services revenue should consult the DSTA for specific calculation rules.

6.1 Do I collect in-scope user data?

The definition of “user data” is broad. When a user interacts with a digital interface, any information or concepts generated or collected from this interaction is considered “user data.”^[52] According to the Notes, this includes:

• Data provided directly by the user, such as preferences, contact information, social media login IDs, billing data, comments, reviews, and pictures.
• Behavior-based analytics, like session duration, pages visited, and device profile (including location).

User data retains its character regardless of ownership or whether it is acquired by a third-party. The Notes indicate that the phrase “directly or indirectly in any manner” is meant to ensure that “user data” is interpreted broadly. This appears to capture in “user data” information that is generated “passively” when, for instance, a smartphone user is travelling with a phone that collects location data without active input from that user.

6.2 Do I earn user data revenue? 

Despite the breadth of the definition of “user data”, revenue from the sale or licensing of “user data” is subject to DST only if it is collected by the taxpayer or a member of its group from an online marketplace, a social media platform or an online search engine.^[53] Both “online marketplace” and “social media platform” have the same meanings discussed above. An “online search engine” refers to a digital interface that allows users to search the digital content of multiple unrelated websites, rather than a limited number of sites (as with the inventory of a retailer).^[54]

The activities that can give rise to “user data revenue” under the DST are nevertheless quite broad and may impact many data-heavy businesses when they seek to monetize the data they collect from an online marketplace, social media platform, or online search engine. Under the DSTA, a taxpayer earns “user data revenue” from the sale, licensing, or otherwise granting of access to user data collected in the manner above.^[55]

Revenue from intra-group payments is excluded. Revenue from services dependent on user data, like consulting or business advisory services, is also excluded and separated from revenue from the sale of the underlying data.

For the purposes of calculating user data revenue, a taxpayer’s revenue can be generated from user data it collected directly or user data collected by another constituent entity in its consolidated group. Importantly, however, if a taxpayer earns revenue from user data, they (or a group member) did not themselves collect, they are not taxed on that revenue. This prevents “cascading DST” when data is sold and resold.

Given these restrictions, taxpayers should be aware that not all methods used to monetize user data will generate “user data revenue” subject to DST. However, they may nevertheless give rise to other kinds of revenue subject to DST.

The connection user data revenue has with Canada is determined in one of two ways.

First, if revenue is earned from user data related to a single "user located in Canada" at the time of data collection, it is attributed entirely to Canada.^[56]

Second, if there is revenue in respect of a set of user data for multiple users where the value of specific data entries in the set is not known (i.e., non-traceable user data), DST may be applied on a taxpayer’s “user data revenue” if any of the users to whom the data relate are located in Canada.^[57]

If revenue is tied to real-time user location, the determination of whether a user is located in Canada uses the real-time location method, similar to online targeted ads. If not, it relies on where the user is "normally located," as outlined for online marketplace revenue.^[58]

Taxpayers earning Canadian user data revenue should consult the specific calculation rules in the DSTA.

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Step 7: Am I required to register with the Canada Revenue Agency?

Once “Canadian digital services revenue” (“CDSR”) is calculated as the total revenue for a calendar year from each of the four streams described in Steps 3-6, taxpayers should assess whether they must register with the CRA.

In general, a particular taxpayer whose group meets the €750 million threshold described in Step 1 will need to register with the CRA if it meets both of the following conditions:^[59]

1. It earns more than $10,000,000 of CDSR alone or as part of a group in a calendar year.
2. At least some of that CDSR was earned by the taxpayer directly.

A taxpayer must apply to register by January 31, 2025 if there is at least one year from 2022 to 2024 where it meets these conditions.^[60]

Notably, the registration requirement under Canada’s DST implies that certain entities must register even if they are not required (and may never be required) to pay DST. This is because the group threshold for registration ($10,000,000 of CDSR) is only 50% of the group threshold for CDSR on which tax must be paid ($20,000,000). The Notes suggest that this is intended to allow the CRA to identify taxpayers that are “close to the threshold for liability.”^[61]

A penalty of $20,000 applies if a taxpayer who meets the conditions does not apply to register on time. For each subsequent calendar year, the penalty increases by another $20,000^.[62] 

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Step 8: Is my Canadian digital services revenue above the $20,000,000 threshold?

The DST payable by a particular consolidated group that meets the €750 million threshold is equal to 3 per cent of its total CDSR for the year that exceeds the “in-scope revenue threshold”, currently defined as $20,000,000.^[63] This effectively operates as a $20,000,000 deduction from CDSR that is available to the group.^[64] Since the $20,000,000 deduction is available on a group-wide basis, it is prorated among group members based on how much CDSR they each earn. Specific calculation rules also apply when an entity enters or leaves a group during a calendar year.^[65]

This being said, if DST is owed by the group, a DST return must be filed by each of the group’s entities that have CDSR, which exceeds that entity’s pro-rated amount of the group-level $20,000,000 deduction. To avoid multiple individual filing and payment requirements, it is possible to elect to designate one group-entity as responsible for reporting and paying the DST on behalf of each of the entities in the group.

Filing entities must file a return by June 30, 2025 if they meet those thresholds (alone or as part of a group) and earned any amount of CDSR during any year from 2022 to 2024.^[66]  Similar to the registration requirement, this means that a particular entity in a group that earns even nominal CDSR for a calendar year,  may be required to pay tax and file a return as long as its group meets the thresholds.

For a taxpayer’s 2024 DST return, taxpayers can also elect to calculate their CDSR for calendar years 2022 and 2023 on a simplified basis.^[67] If this election is made, CDSR can be approximated for 2022 and 2023 by using the ratio of CDSR to the taxpayer’s total revenue in the first calendar year of the DSTA’s application, namely 2024.

Conclusion

Canada’s DST represents a significant compliance challenge for global digital businesses. Taxpayers must contend with a host of novel concepts that have yet to be considered by the CRA or courts, create compliance systems to accurately track newly defined revenue streams, or run the risk of incurring potentially steep penalties. Its broad application to various digital revenue streams may also sweep in business models not typically thought of as "big tech.”

Examples of diverse multinational groups earning at least some amounts of digital services revenue are not difficult to imagine for nearly every industry. As revenue streams for a wide range of businesses become more integrated with online platforms, Canada’s DST should be an important consideration in the global tax compliance landscape once in force.

As the clock strikes midnight on its implementation, businesses should ensure they’re prepared for Canada’s DST. Please reach out to a member of Gowling WLG’s National Tax Practice Group if you have any questions about how the DST might apply to your business.