Businesses face unexpected tax on $2.5 billion in carbon rebates as CFIB urges Parliament to act quickly
The Canada Revenue Agency (CRA) will tax the small business carbon tax rebates, contradicting previous assurances from the Minister of Finance, according to the Canadian Federation of Independent Business (CFIB).
This follows months of uncertainty regarding the taxation of capital gains and other financial measures.
In October 2024, the Department of Finance announced plans to return a portion of fuel charge proceeds from 2019-20 through 2023-24 to businesses by the end of the year, as reported by Global News.
Despite this, CRA has informed CFIB that the Canada Carbon Rebate for Small Businesses is considered “assistance received by the taxpayer from a government in the taxation year in which the assistance is received.”
As such, it is subject to income tax.
The CRA further noted that neither the Finance Minister’s announcement nor the Fall Economic Statement included legislative amendments to make the rebate tax free, according to EverythingGP.
In November 2024, after CFIB objected to an earlier CRA decision to tax the $2.5bn in small business carbon tax rebates, the federal government reversed course.
Finance Minister Chrystia Freeland confirmed this change in a statement on X on November 12, 2024, saying, “This rebate will be tax free.”
The Canada Carbon Rebate is delivering $2.5 billion directly to small businesses.
— Chrystia Freeland (@cafreeland) November 13, 2024
This rebate will be tax free.
The Department of Finance website still states, “the Canada Carbon Rebate for Small Businesses is a tax-free payment.”
“After waiting five years for government to get around to rebating a share of carbon tax revenue to small businesses, we now learn that Ottawa will tax the tax rebate,” said CFIB president Dan Kelly.
The rebates, issued to 600,000 small businesses in December, averaged over $4,000 each. In contrast, carbon tax rebates for Canadian households remain tax free.
To make the rebate tax free, Parliament must introduce and pass new legislation.
“This, on top of the need to prepare for the US tariff threat, is another reason to resume Parliament immediately,” Kelly added.
Kelly also noted that “no wonder 83 percent of small business owners oppose the federal carbon tax. Small businesses have been jerked around for five years, and now the CRA is administering a tax on the rebate despite the government’s promise.”
As per CityNews Toronto, this decision has led to calls for Parliament to reconvene to pass legislation ensuring the rebate remains tax free.
CFIB is calling for immediate action on three key issues:
- Parliament should reconvene immediately to pass legislation ensuring the small business carbon tax rebate remains tax free.
- The government should cancel the planned 19 percent increase in the carbon tax scheduled for April 1, ahead of the Liberal leadership vote and the next election.
- The small business rebate formula should return to 9 percent of total carbon tax revenue, with expanded access for unincorporated businesses.
CFIB continues to press for legislative changes to align government commitments with tax policy implementation.
