Canadians can expect to pay the price of a new digital tax implemented in late June that applies to revenues earned as far back as Jan. 1, 2022.
The Digital Services Tax Act is part of Bill C-59, which received Royal Assent on June 20, 2024. The Department of Finance said the 3% tax applies to large domestic and foreign businesses.
The annual 3% tax will apply to some Canadian-source digital services revenue generated from online marketplaces, advertising services and social media.
Federal Director of the Canadian Taxpayers Federation, Franco Terrazzano, told True North that other countries have imposed similar taxes, which have made the cost of living more expensive and passed the cost down to consumers.
“Trudeau should be doing everything he can to make life more affordable, but this digital services tax will mean higher prices for ordinary Canadians,” said Terrazzano. “The feds need to stop dreaming up new taxes and new ways to make life more expensive.”
An assessment revealed how France’s digital tax was absorbed by consumers and companies alike. It showed that 55% of the tax burden was absorbed by consumers, followed by 40% by businesses using digital platforms, and only 5% by the large internet companies initially targeted.
“This tax will also harm our economy. Trudeau managed to do two terrible things in one fell swoop: raise costs for Canadians at a time they can least afford it and risk a trade war with the United States,” said Terrazzano.
The Information Technology Industry Council, featuring members like Amazon, Apple, Google, Microsoft, Visa, and other tech behemoths, reported “grave concern” after learning of Canada’s digital services tax.
“Canada’s digital services tax sends a damaging blow to its partnership with allies, the business community, and Canadian consumers who will likely bear the burden of this tax,” said the council’s senior director of tax and trade policy, Megan Funkhouser.
“The ill-advised action defies Canada’s commitments in the U.S.-Mexico-Canada Agreement, undermines its participation in the OECD/G20 Inclusive Framework’s multilateral tax project, and jeopardizes its own economic growth,” added Funkhouser.
The council and nearly a dozen other associations penned a letter calling on the United States government to protect the country’s tax base, warning it could cost them up to $2.3 billion annually.
“Canada’s proposal to make this DST nearly three years retroactive is unprecedented. This undermines basic principles of tax certainty and will have a chilling effect on the investment climate in Canada among U.S. companies,” reads the letter.
Google’s terms of service show that anyone using Google Ads in Canada will be subject to a 2.5% Digital Services Tax fee as of Oct. 1, 2024.
“The fees are being added to cover part of the cost of complying with Digital Services Tax legislation in Canada,” reads Google Ads’ support page.
The Interactive Advertising Bureau of Canada warned that consumers will pay for the tax.
“This will increase the cost of running ads on Google and will likely spur similar action on the part of other platforms if they decide to follow suit,” said the bureau.
“Currently, our sector’s major concern is regarding the backlash this may cause in the U.S., particularly during the election cycle,” added the Interactive Advertising Bureau of Canada.
The tax will apply retroactively to “in-scope” revenues earned since Jan. 1, 2022. The four categories that consist of in-scope revenue are online marketplace services revenue, online advertising services revenue, social media services revenue, and user data revenue.
“Making the tax retroactive shows that these federal politicians and bureaucrats are money hungry and trying to take as much money as they can get away with,” said Terrazzano.
Any taxpayer or group with more than €750,000,000 in global revenue and those earning more than $20,000,000 of Canadian in-scope revenue will be subject to the tax.
While most Canadians don’t fall within that threshold, they are consumers of products from organizations that do.
In 2017, Australia implemented a 10% goods and services tax on digital downloads. In response, Netflix increased its prices to cover the tax and additional charges, increasing their prices by more than 10%.
A recent study showed that Canadians already spend more on taxes than food, shelter, and clothing combined.
Derek Robinson, CEO of a marketing agency, said that the Liberals keep making it harder and more expensive to do business in Canada.“The DST is also a tax on a tax. So GST is added after the 2.5% is applied, just like the carbon tax. This will cost several Mash Strategy clients $1000s per year,” he said in a post to X.