Canada’s Digital Services Tax (DST) began as a straightforward attempt by the Trudeau government to ensure global tech giants like Google, Amazon, and Meta pay their “fair share”. But its implementation has become just another cost for Canadian advertisers and a point of contention with the United States. And because of it, Trump said today he’s had enough and cancelled all trade negotiations. For now.

A Quick History

The Canadian government first introduced the idea of a digital services tax in November 2020, threatening to act if a global agreement through the OECD wasn’t reached. When the international negotiations stalled, Ottawa moved ahead independently. On June 20, 2024, Bill C-59 became law, imposing a 3% tax on Canadian-sourced digital revenues for companies earning at least CA$20 million within Canada. That put Amazon, Facebook and Google squarely in the Canuck taxman’s sights.

Even more controversial, the tax applies retroactively from January 2022, with the first payment due June 30, 2025 representing a substantial back payment covering several tax years. According to news reports today, big tech has to fork over $2 billion on Monday.

Who Really Pays

Initially aimed at large tech firms, the cost burden is actually borne by Canadian businesses and consumers. Major platforms, including Google and Amazon, are openly passing costs directly to advertisers and merchants:

• Google Ads now applies a 2.5% “Canada DST Fee.”
• Amazon Marketplace introduced a 3% “Digital Services Fee” on selling fees.

Advertisers are responding by increasing their own prices, passing the costs further down to Canadian consumers. As a result, while Ottawa intended this tax to extract revenue from tech giants, once again inflation-weary Canadians will see price hikes on products and services.

Rising Tensions with the United States

The DST has drawn sharp criticism from the U.S., sparking fears of a serious diplomatic dispute. Washington correctly argues the tax targets American companies. And it violates the United States-Mexico-Canada Agreement (USMCA). In August 2024, the U.S. Trade Representative initiated formal dispute settlement talks, and by February 2025, President Trump directed officials to prepare retaliatory tariffs against Canada.

Canadian Minister François-Philippe Champagne insists Canada will not back down, heightening fears of a trade war reminiscent of past disputes over softwood lumber. If unresolved, tariffs could soon hit Canadian exports, leading to further economic strain.

What’s Next?

Without resolution, Canadians face ongoing economic consequences:

• Yet more retaliatory tariffs from the U.S. increasing the cost of Canadian exports
• Continued pass-through fees raising prices for Canadian consumers
• Ongoing diplomatic friction harming Canada-U.S. economic relations at a time we least need it

The Bottom Line

The Digital Services Tax is just one of several ill-advised policy measures the Trudeau government undertook against big tech. It sparked a chain reaction, transferring costs directly onto stressed businesses and straining relations with Canada’s most significant trading partner. Until a global consensus emerges or diplomatic breakthroughs occur, Canadian consumer will bear the brunt of these economic and political repercussions.

Happy Canada Day!