The federal government says it will be rescinding the digital sales tax “in anticipation” of a trade agreement with the U.S., a decision that comes three days after President Donald Trump said he was terminating talks with Canada immediately unless Ottawa scrapped the tax on American tech companies.
The announcement came in a late night news release on Sunday, which said the June 30 collection of the tax will be halted and Finance Minister Francois-Philippe Champagne would bring legislation forward soon to rescind the tax.
“Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians,” Champagne said in a statement.
The release said this action will see Canada and the U.S. resume negotiations with the original July 21 goal of coming to a deal remaining in place.
“In our negotiations on a new economic and security relationship between Canada and the United States, Canada’s new government will always be guided by the overall contribution of any possible agreement to the best interests of Canadian workers and businesses,” Prime Minister Mark Carney said in a statement.
On Monday, the Canadian Chamber of Commerce commended the government on the move.
“As the Canadian Chamber of Commerce has argued since the beginning, the decision to eliminate the DST (digital services tax) makes sense,” said David Pierce, vice-president of government relations for the chamber. “This tax would have fallen on Canadian consumers, businesses and investors in the form of higher costs and hurt our economy at a critical time.”
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U.S. Commerce Secretary Howard Lutnick said in a post on social media that he appreciated the move, saying the tax would have been a “deal breaker” for any trade deal.
“Thank you Canada for removing your Digital Services Tax which was intended to stifle American innovation and would have been a deal breaker for any trade deal with America,” Lutnick posted.
Last Friday, Trump announced on Truth Social that it was terminating all discussions due to the “egregious Tax,” and warned it would let Canada know of the tariff it would be paying to do business with the U.S. in the next seven days.
The statement also came days after Trump and Carney had agreed at the G7 summit two weeks ago in Alberta to pursue negotiations on the trade and security deal within 30 days.
The president said later on Friday the negotiations would be stopped until “they straighten out their act,” but he did not say whether it mattered if the tax was removed or not.
The digital services tax was announced in 2020 and would see companies like Amazon, Google, Meta, Uber and Airbnb face a three per cent levy on revenue from Canadian users.
It would apply retroactively, leaving U.S. companies with a US$2 billion bill due Monday. A June 11 letter signed by 21 members of Congress said U.S. companies would pay 90 per cent of the revenue Canada will collect from the tax.
It was intended to overcome what the Canadian government saw as a tax loophole, with big tech companies operating in Canada digitally, making money off Canadian users and data, but not paying a tax on it in Canada.
Earlier last week, Champagne said the legislation was passed by Parliament and Canada was “going ahead” with the tax.
Trump’s administration has for weeks been seeking to eliminate other countries’ digital sales taxes, particularly in Europe, that the U.S. argues would be unfairly harmful to American firms, with Trump citing Europe’s duty in announcing his stance on Canada on Friday.
U.S. businesses and politicians have argued the tax targets U.S. companies, with the tax applying to all large tech companies no matter where they were based. However, because so many are based in the U.S., those firms would have paid the bulk of the money.
The opposition isn’t new though, the Biden administration also pushed back against the tax.
Canada and other countries that have the tax have argued it’s necessary to ensure tax fairness.
——With files from Global’s Sean Boynton, Ari Rabinovitch, Bryan Mullan and Marc-Andre Cossette, and the Canadian Press
© 2025 Global News, a division of Corus Entertainment Inc.
