Prime Minister Mark Carney’s decision to rescind the digital services tax (DST), under pressure from the U.S., is the latest example of how quickly Justin Trudeau’s tax legacy is being dismantled.
In just a few months, Carney has reversed Trudeau’s capital gains tax hike and scrapped the consumer part of the federal carbon pricing system, quickly eliminating two pillars of the former government’s post-pandemic tax strategy. Together, those two measures were expected to bring in nearly $20 billion next year alone.
Now, the digital services tax has met a similar fate. It was withdrawn only hours before it was due to be implemented, after President Donald Trump threatened to walk away from trade negotiations over the issue.
The tax would have imposed a 3 percent levy on revenue earned by digital companies in Canada. Washington has long seen it as an unfair cash grab targeting U.S. tech giants. According to the 2024 federal budget, it was expected to generate $6 billion over five years.
Remarkably, Carney told reporters it was never the government’s intention to go ahead with the measure, despite telling Canadians less than two weeks ago that they fully intended to do so. The implication, rather audaciously, is that it had always been a bargaining chip in talks with the Americans. An unconventional use of tax power in unconventional times.
Still, the treatment of tax as a negotiating tactic lays bare the haphazard approach to tax policy that has defined recent years. Since the pandemic, the Trudeau government had scrambled to find new sources of revenue to fund a surge in spending. It introduced new taxes like the DST, a minimum corporate tax, and levies on financial institutions, in some cases with little consultation.
The result has been an unpredictable investment environment for businesses.
Take the uncertainty that continues to surround Canada’s push to implement the Global Minimum Tax ahead of most peer countries. The new cross-border global tax regime—with almost 140 signatories—aims ostensibly to remove loopholes that allow multinationals to shift profits to low-tax jurisdictions. But many of the signatories, like the U.S., haven’t outlined any roadmap yet.
The rushed rollout under Trudeau, and continuing under Carney, has raised alarms among Canadian-headquartered multinationals about being placed at a significant disadvantage. And there are reports that Canada has now even pledged to exclude U.S. companies from the tax, though details remain sparse. Imagine a Canadian tax system that penalizes Canadian firms but exempts American ones. It’s a strange situation.
