Introduction: What is the Digital Services Tax in Canada? Why Did Canada Cancel the DST?
On June 28, 2024, Canada passed the Digital Services Tax Act to impose a 3% tax on revenue generated from online services in Canada, potentially encompassing all online business activities. The DST was set to retroactively apply to business revenues received in 2022 as well, but did not apply to the majority of small and medium-sized businesses. The DST, designed to levy a 3 percent tax on revenues from digital services to Canadian users, will not be collected on June 30, 2025. It is expected that a bill to repeal it will be forthcoming once Parliament reconvenes on September 15, 2025.
For more information related to the Digital Services Tax, see our previous articles on the topic: David Rotfleisch on the New Digital Services Tax Act in Canada: 3% Tax on Certain Types of Online Income & Everything You Need to Know About Canada's New Digital Services Tax Act.
The DST has not been welcomed domestically or internationally since it came into effect. Canadian business groups have always pleaded with the Canadian government to rescind the Digital Services Tax. However, Canada only cancelled the Digital Services Tax on June 29, 2025, just a day before a scheduled collection, and after the U.S. President, Donald Trump, openly criticized the DST, characterizing it as a "blatant" or "direct attack" on U.S. tech, suspended trade talks and threatened to impose punitive tariffs.
In particular, many believe that Canada "caved" after President Trump's threat, since Canada considers the cancellation of DST as a necessary concession to move forward with the trade negotiation between Canada and the United States of America. This article intends to review the impact of the sudden cancellation of the Digital Services Tax.
Canada Cancelled the Digital Services Tax Via News Release, With No Formal Legislation
On June 29, 2025, Canada officially "halted" its planned collection of the Digital Services Tax (DST), pending the introduction and passage of legislation to formally rescind it. The Canada Revenue Agency (CRA) announced the cancellation of DST on June 29, 2025, by Finance Minister François‑Philippe Champagne, via a News Release. It appears that the decision to rescind the Digital Services Tax comes as Canada and the United States resume negotiations on a comprehensive economic and security agreement.
The government positions this move likely as a strategic incentive to strengthen trade ties with the U.S., aligning with a timeline aimed at finalizing a deal by July 21, 2025, as agreed by Prime Minister Mark Carney and President Trump at the G7 summit.
Originally introduced to address perceived tax gaps in digital services, the DST was intended as a stopgap measure until a multilateral solution could be negotiated. Its repeal acknowledges both the forward progress in trade talks and the Canadian government's preference for a globally coordinated digital taxation framework. The move signals Ottawa's willingness to use unilateral tax policy as a negotiating lever. In other words, the government of Canada can concede domestic tax policies for the purpose of trade negotiation.
Impact and Aftermath of the Sudden Cancellation Without Any Guidance for the Canada Revenue Agency
The sudden cancellation of Canada's Digital Services Tax (DST), announced on June 29, 2025, has sent shockwaves through government institutions, the business community, and international observers.
While the move might have been politically strategic—aimed at advancing trade negotiations with the United States—it has left the Canada Revenue Agency (CRA) and Canadian businesses in a state of procedural uncertainty, with no clear directive on how to handle refunds.
Our expert Canadian tax lawyers, as well as many others, comment that the abruptness of the decision, compounded by the lack of transitional guidelines, raises serious administrative, financial, and legal concerns that could impact Canada's tax credibility and operational effectiveness.
It is understandable that the decision to cancel the Digital Services Tax was framed as a goodwill gesture toward the United States as part of broader trade negotiations. However, the sudden announcement did not include any implementation plan or instructions for the CRA. As a result, the agency—tasked with administering the tax—was left in a policy vacuum, having already invested considerable time and resources into systems for assessing and collecting DST liabilities.
From an administrative standpoint, the CRA's position is now highly precarious. Businesses that had either pre-paid or planned to remit DST are seeking clarity on whether they should file retroactive returns, continue with preparation, or request refunds.
The CRA is also currently holding any DST refunds as it awaits official guidance and legislation to cancel the DST from the Department of Finance. Without formal legislative repeal or a transitional framework, the CRA risks facing legal challenges from companies confused about their obligations. Some may claim damages for compliance costs or interest accrued during the uncertainty.
Moreover, the lack of communication and foresight has tarnished the CRA's operational credibility. The CRA depends on stable, predictable rules to administer taxes fairly and efficiently. Sudden political interventions, especially without coordinated planning or interdepartmental communication, undermine the agency's ability to function effectively. It also places CRA staff and knowledgeable Canadian tax lawyers in a difficult position, fielding calls and inquiries from multinational corporations and domestic tax advisors with no formal answers to provide.
Furthermore, the broader public policy lesson is one of coordination—or the lack thereof. While the decision to cancel the DST may ultimately yield gains in trade negotiations with the United States, it highlights the risk of politically expedient decisions being made without adequate institutional preparation.
Taxpayers and agencies like the CRA need advance warning, legal clarity, and procedural guidance to adapt to policy shifts. Without this, Canada risks not only legal and administrative chaos but also the erosion of trust in its public institutions.
Finally, a very significant impact of the sudden cancellation of the Digital Services Tax will be on the government budget. When the Digital Services Tax was introduced, the Parliamentary Budget Office estimated that the DST would bring in more than $7 billion over five years. Although reducing the amount of taxes businesses in Canada have to pay is generally good news, the shortfall in the federal budget puts additional burdens on all Canadian taxpayers.
Pro Tips – Requesting A DST Refund Will Take Time
Unfortunately, due to the lack of legislation formally cancelling the Digital Services Tax, the Canada Revenue Agency is not currently issuing any DST refunds. As a matter of fact, it is expected that no DST refund request will be processed until after September 15, 2025, the date on which the Parliament returns to work from recess. As a result, any businesses that have paid Digital Services Tax can only remain patient and wait for the legislation to be drafted and passed.
If you believe that you need assistance to request a Digital Services Tax refund or any type of tax refund, you should engage with one of our expert Canadian tax lawyers. Our expert Canadian tax lawyers can help communicate with the Canada Revenue Agency, prepare any submission required to justify the refund request, and provide further legal advice on any tax-related matters.
FAQ
Are Businesses in Canada Still Required To File A DST Return or To Pay DST in 2025?
No, since the government of Canada announced that the Digital Services Tax was cancelled on June 29, 2025, businesses are not required to file any Digital Services Tax returns or to pay DST. However, if a business has already paid Digital Services Tax on or before the announcement on June 29, 2025, the business will likely be waiting for an extended period of time before the business can receive the tax refund from the CRA.
How Can Businesses Generally Request Tax Refunds?
When a taxpayer, whether the taxpayer is an individual or a business, is entitled to a tax refund, the taxpayer should make sure to request the tax refund as soon as possible. Under subsection 164(1) of the Income Tax Act, an overpayment of taxes need not be refunded beyond three years from the year in which the taxpayer made the overpayment. For example, if a business overpaid business income tax on June 30, 2025, the business has until June 30, 2028, to request a refund from the Canada Revenue Agency.
When requesting a refund, the first thing a business should do is to confirm how much tax refund the business is entitled to, and what types of tax refunds the business should be requesting. If the business has other types of tax debt, it may simply request the CRA to reallocate the refunds to apply to other tax debt.
If the business has no other tax debt and will not have any further tax liability, the business will need to request a direct refund from the CRA. If a business has an online CRA account, the business can request a refund online. Alternatively, if no online account is set up for the business and no direct deposit information is available to the CRA, the CRA will eventually mail a cheque to the business to refund the taxes.
The business must cash the cheque to receive the actual refund. The good news is that once a cheque is issued by the CRA, it never expires so long as the CRA does not cancel the cheque. If you believe that your business is entitled to a tax refund but the refund has been delayed, you should consult with one of our experienced Canadian tax lawyers to investigate the issue and to correspond with the CRA to resolve the delay.
However, when it comes to the Digital Services Tax, as of July 9, 2025, the CRA takes the position that no refund is available until Parliament passes legislation formally revoking the DST. Given that the Parliament is currently on break and is scheduled to return on September 15, 2025, it is expected that no refund request for the Digital Services Tax will be processed before then. Thereby, if you're waiting for a refund from the Digital Services Tax, you will need to stay patient and wait for the Parliament to get back to work.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
