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Canada’s Digital Services Tax — the DST — is slated to take effect at the start of 2022. Find out about the details of the new tax

In Budget 2021, the federal government confirmed its plan to introduce a federal Digital Services Tax (DST), as first announced in the Fall Economic Statement 2020. The budget also revealed some key features of the new DST and how it will be implemented, although draft legislation has not yet been released at the time of writing.

The DST is designed to tax proliferating business models that rely on digital technology to engage with online users in Canada, including intermediation and social media platforms. Unlike traditional businesses, these businesses often do not need a local physical presence to engage with users in Canada and they usually generate some or all of their profits from their users’ participation, data and content.

Although the Organisation of Economic Co-operation and Development (OECD) has been working to gain international consensus on a solution to deal with the tax challenges of the digitalized economy, an agreement has not yet been reached (as discussed further below). Budget 2021 says Canada’s proposed DST would apply as of January 1, 2022 until an acceptable multilateral approach takes effect.

In the budget, the federal government also invited feedback from stakeholders on the details of the proposed DST and implementation approach. In response, in our recent submission we highlighted some important concerns with some of the DST’s main elements.

OVERVIEW: BUDGET 2021’S DST PROPOSALS

While many questions remain in the absence of detailed legislation, the key features of the DST as set out in Budget 2021 are as follows:

Rate and base

The DST would apply to in-scope revenue at the rate of three per cent. This excludes any value-added tax or sales tax collected on the transaction.

In-scope revenue

The DST would generally apply to revenue from four types of online business models that rely on engaging with Canadian online users in order to generate income:

online marketplaces – including services provided through an online marketplace that helps match sellers of goods and services with potential buyers
social media – including services provided through an online interface to facilitate interaction between users or between users and user-generated data
online advertising – generally includes services aimed at the placing of targeted online advertising based on data gathered from users of an online interface
user data – generally, the sale of data gathered from users of an online interface

For online marketplaces, the DST would not generally apply to:

tangible goods stored, sold and shipped through the marketplace
goods and services sold by a seller through the marketplace on their own account (including the sale, licensing, or streaming of digital content such as audio, video, games, software, ebooks, newspapers and magazines)

Taxpayers

The DST would apply to large foreign and domestic entities (including corporations, trusts, and partnerships) or members of a group that meet both conditions:

€750 million or more in global revenue from all sources in the previous calendar year, and
in-scope revenue associated with Canadian users of $20 million (CAD) in that year

The €750 million threshold is the same threshold that triggers the OECD’s country-by-country reporting requirements.

If the two conditions are met, the DST would apply only to in-scope revenue associated with Canadian users that exceeds the $20 million threshold. The proposals indicate that the definition of groups in the DST legislation would follow the definition in the country-by-country reporting rules.

Source of revenue

When revenue flows from both in-scope and other business activities, the in-scope revenues would need to be reasonably allocated among the activities. Budget 2021 proposes two general approaches for determining an entity’s in-scope revenue related to Canadian users:

when transactional information can be traced to Canadian users, that revenue amount would be in-scope
when tracing is not possible, the in-scope amount would be allocated through a formula that varies depending on the revenue’s nature

Location of users

To source revenue related to digital service users in Canada, Budget 2021 suggests looking to the users’ ordinary location, although the user’s real-time location could be used for specific types of revenue. The digital service provider can determine a user’s location through data it already has, such as the user’s IP address, billing address, delivery address and telephone area code. Digital service providers would be expected to use a consistent approach for determining their users’ locations.

Income tax treatment

The DST would be deductible from an entity’s taxable income based on the usual Canadian income tax principles — that is, whether the entity incurred the expense in order to earn taxable Canadian income. DST liabilities would not be eligible for a Canadian income tax credit.

DST filings and payments

Businesses subject to DST would have to file an annual return after the end of the proposed calendar-year reporting period. One annual DST payment would be required after the end of the reporting period, and one designated entity would be allowed to file the DST return and pay the related liability for the entire group. However, the group would be jointly and severally liable for DST payable by any other group member.

Also coming soon: GST changes for ecommerce

With all the talk about new taxes on electronic transactions, it’s also important to keep in mind that GST changes for ecommerce will take effect on July 1, 2021. These GST rules will generally apply to a broader range of goods and services than the DST. For example, cross-border video streaming services will become subject to the GST but generally not the DST.

About the Author: Bruce Ball

Source: CPACanada

Thinking about the new workplace routine can be anxiety-inducing, but there are things you can do to ease the transition

After working from home for nearly 18 months, the idea of heading back to the office can bring up a lot of feelings. Whether this has been a time filled with additional daily stress or a period marked by enjoying a commute-free workday or something in-between, experts all agree the return to in-person work will have challenges no matter which lense you’re looking through.

“The return to the office is proving to be so much more complicated because work from home was basically a tech solution,” says Michael French, regional vice-president at Robert Half Canada. “But the return of the office is way more of a human solution.”

“The effects of the pandemic are probably going to be with us for some time,” says Liz Howarth, manager of workplace mental health at the Mental Health Commission of Canada. “There’s an increased fear among some people about being back out there. And that’s very normal when we’ve been isolated.”

The good news? You can help prepare yourself for the return to the workplace. Here’s how:

1. ACKNOWLEDGE THE SITUATION

From adjusting to new protocols or even mental health up and downs, people have learned to adapt to the continually changing pandemic situation, says Katy Kamkar, clinical psychologist for CAMH and assistant professor in the department of psychiatry at the University of Toronto. Preparing for a return to the office is one more hurdle.

“This is again, readjusting to a new structure and new routine,” she says. “A lot of the changes that people go through invite a range of emotions. But it’s also incredible the amount of strength and resilience that we have shown this last year.”

And it’s a normal reaction to have anxiety whenever we face uncertainty, says Kamkar. Being upfront about concerns, she says, and seeking help and support when needed, can help manage negative thoughts before they become overwhelming.

2. MANAGE EXPECTATIONS

Don’t plan on returning to your pre-pandemic office routine, says Horvath, but do plan for an adjustment period. “One of the major things is being prepared that we’re not going back to normal life,” she says.

Being realistic about the current situation—and what new office culture will be—helps approach the idea of change successfully. “Look forward to new routines and be mindful of what we need to do to care for our physical and mental health,” says Horvath.

Do be proactive, she adds, by eating well, getting enough sleep and exercising to help calm some of the stress being experienced.

3. FOCUS ON THE NOW

Focusing on current worries should be the objective, say Kamkar, as opposed to future worries, which are things that may or may not happen.

To ease some of the stress, she recommends looking to available information including employer updates on return-to-office timelines and in-office health protocols. When armed with knowledge, “we feel more empowered, we feel more resilient,” she says, “And really, resiliency is when we are able to optimize our resources, strength and support.”

4. CREATE A PLAN

Dr. Bill Howatt, president of HowattHR, which focuses on workplace psychological health and safety, says worry management is about managing contingencies.

“Build a plan,” he says. “Structure how much you’re going to go to work. Maybe you can return to work gradually.” He also recommends thinking ahead to put carpooling plans in place, if there are concerns about public transportation, getting enough rest and planning your day to accommodate for work-life balance.

Also important is implementing a mental-fitness strategy that can be incorporated into a daily or weekly routine. This should be personalized to individual needs, Howatt says, whether that includes daily movement, meditation or a walk around the block to create inward focus and relaxation.

“It’s about ‘what am I going to do to charge my batteries to build my resiliency?’,” he says. “Mental fitness is your ability to build your resiliency to get ready for today or tomorrow, understanding that, ‘I have control over my happiness’ and being mindful that ‘I’m the one ultimately responsible for my own private victories that will create my happiness.’”

5. THINK POSITIVELY

Adverse thoughts have a way of developing in our minds, especially in times of stress. Kamkar recommends trying to recognize these thoughts before they manifest into something bigger.

“We know that our self-talk really matters,” she says. “Reassure yourself that we have done that [worked in the office] before the pandemic and we have been able to readjust to the changes of the pandemic, too.”

Perspective and mindset play an important role, says Horvath. And this starts at home. “We need to look at ‘how can I reduce the overall burden so that I can keep my stress levels down?’” she says, suggesting simple tasks such as organizing your wardrobe early and preparing lunch in advance to knock things off the to-do list.

FINDING SILVER LININGS

The good news is that these challenging times have also spurred some positive changes. Not only has the pandemic proven people can work remotely and from all over the globe, Howatt says, but it has shown that employees have more opportunities than they used to. “I think we’re going to be realizing that we have choices,” he says, adding that “brain health” will be where both employees and employers focus much effort.

Although experts agree this is a time of high stress, it is also one of great opportunity. “It’s probably going to be a once in a generational time to do a corporate reset on work-life balance,” says French. “There are lots of changes, hopefully a lot for the better, too.”

TAKING CARE

Find out why managing mental health in the workplace matters and learn stress management techniques to help cope during this uncontrollable time.

Also, see how some organizations are preparing to welcome their employees back into their workspaces and how CPAs have been faring working from home.

About the Author: Michelle Singerman

Source: CPA Canada

Canada’s digital services tax