The day was June 30, 2025, the deadline to make the first payment of the newly introduced Digital Services Tax (DST). Just hours before the first payments were due, the Canadian government announced that it would repeal the DST by issuing a press release on June 29, 2025. But is one press release enough to repeal a tax that has undergone the lengthy process of draft legislation, stakeholder comments, and received royal assent to become a law?

The press release states that “Canada would rescind the DST,” which implies that a new bill to repeal the DST will be introduced to Parliament upon its reconvening on September 15, 2025. The Act will have to receive the royal assent to become law.

Until then, the Canada Revenue Agency (CRA) has paused the collection and filing of DST. Companies, the CRA, tax advisors, and accountants are awaiting an update on the DST issue to plan their next move. All this has created administrative and tax uncertainties for businesses subject to DST.

Where did this all begin, and why was the DST rescinded? How can Canadian business owners navigate such uncertainties?

What is Digital Services Tax?

In June 2024, the Canadian government passed Bill C-59, introducing a 3% digital services tax in Canada, targeting both domestic and foreign companies earning revenue from digital services such as

• online marketplace services
• online advertising services
• social media services
• sales or licensing of Canadian user data 

The tax applies to any company, domestic or international, that worked solely or as a member of a consolidated group and earned digital services revenue in Canada in the calendar year.

• The business, or its consolidated group, had earned €750 million or more in total revenue during a fiscal year that ended in the prior calendar year.
• The business, or its consolidated group, had earned $10 million or more in Canadian digital services revenue in the calendar year.

The DST was applied retroactively to January 1, 2022, with the first tax payments due by June 30, 2025. It means companies had to pay three years’ worth of DST (2022, 2023, and 2024) by the due date of June 30, 2025. Even if no tax was payable, companies were still required to register with DST.

Why Did the Government Rescind the Digital Services Tax?

Both domestic and international businesses did not welcome the Digital Services Tax and pleaded with the Canadian government to rescind it. The U.S. government opposed Canada’s DST, stating that it unfairly targets American tech giants. Moreover, the tax conflicted with the OECD’s efforts to create a globally coordinated framework for digital taxation.

The Canada DST became the cause for a halt in trade negotiations between the United States and Canada by June 27, 2025. U.S. President Donald Trump threatened to suspend bilateral trade negotiations and impose retaliatory tariffs if Canada continued to collect DST. To ease the mounting pressure and open the grounds for trade negotiation, the Canadian government rescinded DST on June 29, and there has been no update since then.

This abrupt pause, without a formal legislative repeal or a transitional framework, has created legal and administrative uncertainties for all stakeholders, from the CRA to companies.

Uncertainties Around the Digital Services Tax Remain

Legal uncertainties: Although the CRA has paused DST collections, the tax remains technically a law, as per the books. Until it is tabled in the parliament and receives a royal assent, the government can at any time reactivate the law if trade negotiations don’t go as planned. Until there is clarity, it is better to wait and watch.

Businesses that are undecided about whether to file DST returns or pay the tax should take no action and wait for further communication from the CRA. The CRA will waive late-filing penalties and cancel interest on unpaid DST tax.

This legal uncertainty puts the CRA in a precarious situation where it risks facing legal challenges from companies claiming damage for compliance costs or interest accrued during the uncertainty.

Administrative uncertainties: From an administrative standpoint, the CRA cannot issue refunds to companies that have already paid DST until the changes are made in the legislation. It will need to create forms and a system to review, calculate, and process requests for refunds of DST payments with interest, which will depend on the timing and legal mechanism for rescission.

Businesses That Have Already Filed or Paid Digital Services Tax 

Businesses that have already built internal reporting systems, budgeted for the tax, and filed and paid DST can take the following steps:

• Keep an eye on any communication from the CRA regarding your filing status, potential refunds, or deregistration processes. 
• Keep all the records and documentation prepared for DST filings safe, as they may be needed when claiming a refund.
• Track developments around DST and other taxes that could affect your business.

How Can Canadian Businesses Prepare for Future Tax Changes

The repeal of the Canadian DST is merely a short-term compliance relief. However, it serves as a reminder for digital services companies that operate across borders to comply with the tax rules of each country.

Countries are coordinating to prepare global tax frameworks in response to unilateral digital taxation. Once multinational solutions are negotiated, companies, both small and large, will be required to comply with digital reporting requirements and tax obligations.

The June 30, 2025, deadline has set the wheels in motion. Companies may consider consulting with tax advisors who are experienced in handling cross-border taxes to help them navigate the rapidly evolving regulatory environment.

Contact Edelkoort Smethurst CPAs LLP in XXX to Help You Stay Compliant with Cross Border and Domestic Taxes

Talk to a professional tax advisor to help you proactively plan and budget for any future tax obligations and provide support on reporting and tax compliance. At Edelkoort Smethurst CPAs LLP, our accountants and tax consultants are updated with regulatory changes and can provide services such as tax filing and planning. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with the best accounting and tax expertise, contact us online or by telephone at 905-517-2297.