Your Business News

Are you ready for Canada’s Digital Services Tax?

January 3, 2022

Authored by RSM Canada LLP

Cleo L. Melanson, CPA, CA, CMA shared this article


The federal government released the draft Digital Services Tax Act (DST Act) on Dec. 14, 2021. The proposed DST Act would implement the DST announced in the 2020 Fall Economic Statement, further details of which were presented in Budget 2021.  

The DST was proposed from the outset as an interim measure, to apply until an acceptable multilateral approach comes into effect. The DST would not be imposed earlier than Jan. 1, 2024, and only if the treaty implementing the Pillar One tax regime under the multilateral approach has not come into force. In that event, the DST would be payable as of the year that it comes into force in respect of revenues earned as of Jan. 1, 2022. The government hopes that the timely implementation of the new international system will make this unnecessary.


The DST would apply to large businesses, both foreign and domestic, that meet both of two revenue thresholds. If a taxpayer is a member of a consolidated group, these thresholds would be calculated on a group basis. 

  • Total revenue threshold – at least €750 million in a fiscal year of the taxpayer or group that ends in the immediately preceding calendar year; and
  • Canadian in-scope revenue threshold – at least $20 million of Canadian digital services revenue.

Given the group-level threshold calculations and group-wide sharing of the $20 million deduction, members of consolidated groups would be allowed to designate an entity in the group to fulfill their filing obligations, pay the DST liability and otherwise comply with the administrative requirements of the Act.


The DST will be a 3% tax on Canadian-source revenue relating to digital services more than $20 million earned by an individual entity or consolidated group with at least €750 million in global revenue. 

In-Scope Revenue

Canadian digital services revenue is defined as revenue from four categories of activities (the “in-scope revenue”), which consist of:

  • Online marketplaces that help match sellers of goods and services with potential buyers, whether or not the platform facilitates completion of the sale, with certain exceptions;
  • Social media that facilitates interaction between users or between users and user-generated content;
  • Online advertising that targets based on data gathered from users of an online interface. This includes online interfaces such as online marketplaces, social media platforms, internet search engines, digital content streaming services and online communications services; and
  • The sale or licensing of data gathered from users of an online interface.

Treatment for income tax purposes

The DST liability of an entity would be deductible in computing taxable income for Canadian income tax purposes based on general principles – e.g., whether it is incurred to earn the entity’s income. DST liability would not be eligible for a credit against Canadian income tax payable.


Any taxpayer that has Canadian digital services revenue in a calendar year or is part of a consolidated group that in a year or any prior calendar year as of 2022 (i) meets the €750 million global revenue requirement and (ii) earns at least $10 million (rather than the $20 million thresholds for tax liability) of Canadian digital services revenue will have to register under the DST.

Taxpayers that meet the total revenue threshold and the Canadian in-scope revenue threshold in a calendar year should file a tax return under the DST Act and pay any taxes owing on or before June 30 of the following year. This deadline is different from the deadline for filing corporate tax returns in Canada which is six months after the taxation year-end.

The Minister of National Revenue may assess any constituent member of a consolidated group for a tax liability of any other constituent member of the group, under which each such member becomes jointly and severally liable for the tax liability. 

The general reassessment limitation period for a calendar year is seven years after the required return for the period is filed. The general retention period for keeping necessary records is eight years.

The draft legislation includes an interesting rule that where a taxpayer has initiated an appeal to the Tax Court of Canada, the government can also apply to the court to award an additional amount of up to 10% of any amount in dispute if the court determines:

  • in respect of that amount, “there were no reasonable grounds for the appeal”, and 
  • the purpose of the appeal was to defer payment of any amount owing under the DST Act.

Multinationals should review their online revenue streams

The proposed legislation reiterates the government’s commitment to international tax reform. It is now critical for multinational enterprises to review their online presence and revenue streams to identify potential compliance and tax exposures.

Let's Talk!

Call us at 1 855 363 3526 or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Jiani Qian, Nakul Kohli and originally appeared on 2022-01-03 RSM Canada, and is available online at

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM Canada Alliance provides its members with access to resources of RSM Canada Operations ULC, RSM Canada LLP and certain of their affiliates (“RSM Canada”). RSM Canada Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM Canada. RSM Canada LLP is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms. Members of RSM Canada Alliance have access to RSM International resources through RSM Canada but are not member firms of RSM International. Visit for more information regarding RSM Canada and RSM International. The RSM trademark is used under license by RSM Canada. RSM Canada Alliance products and services are proprietary to RSM Canada.

FCR a proud member of RSM Canada Alliance, a premier affiliation of independent accounting and consulting firms across North America. RSM Canada Alliance provides our firm with access to resources of RSM, the leading provider of audit, tax and consulting services focused on the middle market. RSM Canada LLP is a licensed CPA firm and the Canadian member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM Canada Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how FCR can assist you, please call us at 1 855 363 3526

Important Notice:

FCR will now redirect you to CCH Portal where your FCR Client Portal login is located.

Share This