Large businesses may now be impacted by Canada’s new Digital Services Tax (DST) on online revenues starting from January 1, 2022. The official commencement date for the DST has been set to June 28, 2024, following the receipt of Royal Assent on June 20, 2024. The announcement of the commencement date was made on July 3, 2024.
Businesses should assess how they will be influenced by the DST regulations and consider the accounting implications related to their responsibilities under this new tax legislation. Affected businesses must register with the Canada Revenue Agency (CRA) by January 31, 2025, file their initial DST return, and settle any applicable taxes by June 30, 2025, to avoid penalties and interest.
Who is subject to the DST?
Large corporations meeting the criteria of having a global group revenue exceeding €750 million in the preceding fiscal year and garnering more than $20 million in “in-scope” revenue from Canadian users during the current calendar year may be liable for the new 3% DST. Additionally, companies with $10 million of in-scope revenue for a specific calendar year might also need to register under the DST regulations.
How is revenue determined?
The DST applies to revenue that surpasses the $20 million threshold. To calculate their in-scope revenue, businesses must evaluate their earnings within different categories that involve users in Canada, with each category having specific sourcing rules:
- Online marketplace services revenue: Generated from operating an online marketplace linking sellers and buyers.
- Online advertising services revenue: Earned through targeted online advertisement services, delivery facilitation, and digital ad space provision.
- Social media services revenue: Derived from managing social media platforms that enable user interactions and content sharing.
- User data revenue: Acquired from selling or licensing data collected from online marketplace, social media, or search engine users.
Simplified revenue calculation for 2022 and 2023
For the calendar years 2022 and 2023, businesses can opt for a simplified approach to calculate their Canadian digital services revenue using a formula designed to estimate their in-scope revenue.
We can help
If you have any further questions or need assistance regarding the Canada Digital Services Tax or any accounting and tax-related matters, feel free to reach out to your Clear Wealth Accounting Advisors Inc advisor for personalized guidance and support. We can provide you with detailed information on how the DST may impact your business and assist you in navigating the necessary compliance requirements.
