Update on Tax Treatment of Federal Carbon Tax Rebate

CFIB broke the news that the $2.5 billion carbon tax rebate for small business IS CURRENTLY considered taxable income for the 600,000 businesses that received it.  See our latest news release here.

Despite the public promise from former Finance Minister Chrystia Freeland to make it tax free, the Canada Revenue Agency has informed us that it will assess taxes on the carbon rebate as the government did not amend the necessary legislation before Parliament prorogued.

This is the latest twist in the long-standing saga of the carbon tax rebate for small business.  Just as a recap:

1. Government promised to rebate 10% of total federal carbon tax revenues to small businesses when it began in 2019.
2. Government couldn't figure out how to do this, so sat on the money for FIVE straight years - with $2.5 billion in accumulated rebates last year.
3. After years of lobbying, CFIB put forward a simplified formula to Finance Minister Chrystia Freeland last spring. She largely accepted our idea and announced the $2.5 billion rebate in the April 2024 budget.
4. CFIB learned CRA would consider the rebate "government assistance" and, as a result, assess taxes on it.
5. CFIB sent out a news release slamming government in November 2024.  Within a few hours, government backtracked and Minister Freeland publicly announced it would be tax free.
6. Rebate cheques were distributed to most eligible businesses in December, 2024.
7. Following then-Minister Freeland's resignation and the PM's prorogation of Parliament, CRA shared with CFIB that the legislative changes to make it tax free did not yet happen.
8. The Department of Finance tell us that it still intends to make it tax free, but cannot make the change without Parliament sitting.
9. With the Liberal leadership race and an impending election, it will be up to a new Prime Minister to decide whether to proceed.
10. The good news is that most businesses will not file their 2024 corporate tax returns until the summer of this year. This does allow time for this issue to be fixed. We want to advise small business owners that it is taxable for now, but CFIB is actively lobbying all parties to fix the issue.  

Tax-free carbon tax rebates have been  deposited to eligible business owners as of November 25, 2024. If you’re not registered for direct deposit with the CRA, cheques have been mailed. 

Everything you need to know about the carbon tax rebates

On October 1, 2024, the federal government announced that it will return $2.5 billion in carbon tax rebates to small businesses by December 2024. This applies to businesses that filed their 2023 year-end tax return by the July 15, 2024, deadline.

The government is also proposing to extend the filing deadline to qualify to December 31, 2024 (previously July 15, 2024) for those who have not yet filed their 2023 year-end corporate tax return. Legislation enacting this change still needs Royal Assent.

On November 6, CFIB sent a letter to Minister Freeland voicing our strong opposition to the rebate being taxed as business income. On November 12, she confirmed that the rebate will be tax free – all thanks to CFIB!

Rebates will be based on the number of T4s issued by an employer, including those issued to the business owner, their family, part-time, and seasonal workers, as well as for positions that turn over.

Did you know?

• The carbon tax increased by a staggering 23% on April 1^st! That means the cost of a litre of gasoline includes 17.6 cents of carbon tax!
• $32 billion has been collected in carbon tax revenue since 2019.
• The federal government has reduced the rebate amount from 9% to 5% starting this year, to accommodate for higher consumer rebates.

What is the carbon tax and how does it affect my business?

The federal carbon tax was introduced in 2019 to put a price on carbon pollution. Today, CFIB estimates that small businesses pay about 40% of the carbon tax, although they are only eligible for 5% (previously 9%) in rebates. The tax has undoubtedly contributed to the rising cost of doing business in Canada, and at great expense to small business owners. Small business owners agree: it’s time for Ottawa to fix the broken carbon tax or go back to the drawing board.

CFIB is asking for the following:

• Eliminate the carbon tax.
• Deliver the rebates as soon as possible, with significant rebates for the smallest businesses.
• Increase future rebates back to 9% or more, as long as the tax is in place.