Canada’s Digital Services Tax: What Businesses Need to Know About the New 3% DST

Introduction

Canada’s proposed Digital Services Tax (DST) represents one of the most impactful changes to the taxation of large digital platforms, online marketplaces, social media companies, and tech-driven revenue models. Although DST is aimed primarily at multinational corporations, many Canadian businesses — especially e-commerce sellers, influencers, app developers, online advertisers, and digital service providers — may be indirectly affected through increased fees, platform charges, or compliance costs. As global tax rules change, understanding how Canada’s DST works and how it interacts with CRA obligations is essential for businesses operating online.

What the Digital Services Tax (DST) Is

Canada’s DST is a 3% tax applied to large corporations that generate revenue from:
online marketplaces
social media platforms
digital advertising
user data monetization
digital intermediation services
The tax targets multinational tech giants with significant global and Canadian revenues. Although small businesses do not pay this tax directly, DST affects the digital ecosystems that many Canadian entrepreneurs use daily.

Who Is Subject to the DST

DST applies only to groups that meet both thresholds:
global revenue of at least €750 million in the previous year
Canadian digital services revenue of at least $20 million
This includes large multinational corporations such as streaming platforms, digital advertisers, global marketplaces, and foreign tech firms operating in Canada. Small and medium-sized Canadian businesses are not directly taxed, but they may face secondary impacts.

Why DST Was Introduced

The DST addresses perceived gaps in international tax rules. Historically, multinational tech companies could earn substantial revenue from Canadian users without paying corporate tax in Canada. DST ensures these companies contribute to Canadian tax revenue until a global tax agreement under the OECD framework is fully implemented. Canada’s DST is designed as a temporary measure until a unified global tax solution is in place.

What Activities Are Taxed Under DST

DST applies to revenue from the following categories:
online marketplace services
digital advertising viewed by Canadian users
social media platform services
data collected from Canadian users
This includes revenue from:
marketplace listing fees
subscription fees
advertising impressions
sponsored placements
data licensing
algorithm-driven ad targeting
Many Canadian businesses — especially advertisers and creators — may feel the effects through higher platform fees or reduced advertising reach.

Impact on Canadian Businesses and Consumers

Although DST targets large foreign companies, the tax often results in:
increased advertising costs
higher subscription fees
boosted marketplace transactions fees
reduced payout percentages for creators
cost increases passed on to sellers or consumers
Canadian businesses using platforms like Google, Facebook, Amazon, TikTok, and Instagram may ultimately bear the cost even though they are not directly subject to DST.

DST vs GST/HST

DST is separate from GST/HST. Key differences include:
DST applies only to large digital platforms
GST/HST applies to almost all digital and physical sales
Businesses may pay GST/HST and still be indirectly affected by DST
Both taxes coexist, and digital service providers may add DST charges in addition to GST/HST.

DST and International Tax Agreements

The DST is controversial internationally because:
the U.S. opposes unilateral digital taxes
other countries (France, UK, Italy) already implemented similar taxes
the OECD’s global tax reform aims to replace DSTs with coordinated rules
If a global tax deal is finalized, Canada may repeal DST, but businesses must prepare for transitions.

Recordkeeping and Compliance Requirements

Although DST is not filed by small Canadian businesses, companies using digital platforms must track:
advertising costs
marketplace fees
subscription charges
data usage fees
changes in platform pricing due to DST
Canadian businesses must separate:
expenses subject to GST/HST
expenses inflated by DST but not recoverable through ITCs
This distinction is essential for accurate bookkeeping and expense claims.

Common CRA Audit Considerations

DST does not change Canadian income tax obligations, but CRA may review:
advertising expense categorizations
GST/HST claims on digital platforms
foreign vendor payments
cross-border transactions
digital advertising write-offs
Proper documentation is required to support deductions and ITC claims.

How DST Affects Online Creators and Advertisers

Creators may be affected through:
reduced revenue-share percentages
increased platform service fees
higher ad rates for campaigns
Advertisers may see:
increased ad costs from major platforms
reduced campaign ROI
the need for adjusted marketing budgets
DST often increases marketing costs for small businesses relying on digital strategies.

Mackisen Strategy

At Mackisen CPA Montreal, we help businesses understand DST impacts, categorize digital expenses correctly, plan GST/HST claims, optimize advertising budgets, and prepare for CRA reviews of digital service spending. We also advise cross-border clients on tax-efficient strategies as global digital tax rules evolve.

Real Client Experience

A Montreal e-commerce business saw rising Amazon and Meta fees linked to DST and needed budget restructuring. A marketing agency required GST/HST optimization to reduce tax leakage on digital advertising. A Canadian creator on YouTube adjusted revenue expectations after DST-related fee adjustments from the platform.

Common Questions

Do small businesses pay DST? No, only large multinational digital platforms. Will DST increase advertising costs? Yes in many cases. Is DST claimed as an ITC? No, DST is not GST/HST. Will DST be replaced? Likely once global OECD rules finalize. Does CRA audit digital advertising expenses? Yes frequently.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps Canadian businesses navigate the financial impact of DST, manage GST/HST properly, and optimize digital tax planning in an evolving global environment