Canada faces financial consequences for scrapping the digital services tax, according to Bloomberg Tax.
Canada has announced a plan to process refund requests for businesses affected by the scrapped Digital Services Tax (DST) without waiting for Parliament to repeal the tax legislation.
According to a report by tax experts Patrick Marley, Associate in Toronto, and Kaitlin Gray, Associate in Calgary, the government can halt all DST collection and suspend filing requirements immediately. This move will allow the Canada Revenue Agency (CRA) to waive penalties and interest, and plan refunds once the repeal occurs without waiting for Parliament to complete the legislative process.
As of June 30, 2020, Canada has halted DST collection and the CRA has delayed the requirement to file DST returns. The agency has also waived or cancelled penalties on late filers and waived interest on DST-related amounts already paid. The CRA has signaled it will not require payment or filing until the DST Act is formally rescinded.
Once legislation is tabled and receives royal assent, businesses that prepaid the DST are eligible for refunds. However, actual refunds can only be issued after the Digital Services Tax Act is formally repealed through legislation.
The authors warn that the delay in refunds could lead to cash flow problems for some businesses, and that the government should consider providing short-term financial assistance to those affected. They also argue that the government should prioritize the processing of refunds for smaller businesses, as they may face greater financial hardship due to the DST.
The report suggests that it may be advantageous to wait until the last minute to comply with tax declaration obligations and payment requirements for the DST. This approach could potentially save businesses time and resources, as they would not have to prepare and file DST returns until the legislation is officially repealed.
The cancellation of the DST means that Canadian taxpayers will bear the administrative costs of a tax that will generate no revenue. The DST was not well-received by the U.S., where most affected taxpayers reside.
In summary, Canada's plan to process DST refunds involves an immediate halt of DST collection, a waiver of penalties and interest, awaiting formal repeal legislation, and refund processing post-repeal. This method reconciles the need to quickly stop the DST's financial impact on businesses while respecting legal requirements that refunds depend on formal legislative repeal.
This approach facilitates quick relief administratively but refunds depend on legislative repeal, preventing lengthy waits through proactive CRA measures.
[1] Department of Finance Canada. (2025). Digital Services Tax: Frequently Asked Questions. Retrieved from https://www.fin.gc.ca/taxes-impots/faq-afp-tds-eng.asp
[2] Canada Revenue Agency. (2025). Digital Services Tax: Information for Businesses. Retrieved from https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/digital-services-tax/digital-services-tax-information-businesses.html
[3] Marley, P., & Gray, K. (2020). Processing Digital Services Tax Refunds Quickly: A Proposal for the Government of Canada. Retrieved from https://www.mccarthy.ca/en/insights/articles/2020/processing-digital-services-tax-refunds-quickly-a-proposal-for-the-government-of-canada
[4] Government of Canada. (2020). Digital Services Tax: Cancellation. Retrieved from https://www.canada.ca/en/department-finance/news/2020/06/digital-services-tax-cancellation.html
[5] Parliament of Canada. (2020). Digital Services Tax Act, S.C. 2020, c. 12. Retrieved from https://laws-lois.justice.gc.ca/eng/acts/D-15.8/page-1.html
- The Department of Finance Canada has published a FAQ page regarding the Digital Services Tax (DST) at this link: https://www.fin.gc.ca/taxes-impots/faq-afp-tds-eng.asp.
- The cancellation of the DST has significant implications for businesses in terms of finance, politics, and general-news, as it may lead to cash flow problems and could affect the business sector and the economy at large.
