Finance Minister François-Philippe Champagne, then Minister of Innovation, Science and Industry speaks on stage during the UK Artificial Intelligence (AI) Safety Summit at Bletchley Park, in central England, on November 1, 2023. (Photo by Leon Neal / POOL / AFP)
The federal government has issued draft legislation ensuring all Canada Carbon Rebates for small businesses are given tax-free, meeting a promise previously given by the former finance minister.
Finance Minister François-Philippe Champagne introduced draft legislation on June 30 that would ensure payments received by corporations related to the fuel charge from 2019 to 2023 would not be included in income for tax purposes.
Additionally, the final payment to be made under the Canada Carbon Rebate for Small Businesses will be tax free. The Liberal government will introduce legislation to make these changes when the House of Commons resumes in the fall.
However, the government said that with the federal fuel charge being removed and the winding down of mechanisms providing tax returns for the charge, it will no longer be able to broaden eligibility for the rebate to include cooperative corporations and credit unions, add a minimum payment for smaller businesses, or introduce a phaseout for larger businesses. These changes were announced in the 2024 Fall Economic Statement.
The Fall Economic Statement said tax-free rebates had begun delivery to small businesses on Nov. 25, 2024, and former Finance Minister Chrystia Freeland said in a statement on the X social media platform on Nov. 12 that the rebate would be tax-free.
However, the Canadian Federation of Independent Business (CFIB) said months later that small businesses were still being taxed on their carbon rebates. The business group said in February it had been advised by the Canada Revenue Agency that the rebates were considered government assistance to taxpayers, and that they were thus still subject to taxes.
“It’s just the most unhelpful time to provide even more tax uncertainty at a time when businesses are scrambling to deal with the potential tariff issue, and so that makes this doubly bad,” CFIB president and CEO Dan Kelly said, noting that the prorogation of Parliament was making things more difficult because only new legislation presented in the House of Commons could overturn the decision.
Kelly said on July 2 that the latest announcement was “good news for small business owners,” who would see taxes removed on a collective $3 billion in carbon rebates. He added that if businesses have not yet filed their 2024 income taxes, they will not need to declare the rebates as income.
Kelly also thanked Champagne for “the recent call on this and for getting this across the finish line with so many other critical files competing for attention.”
Prime Minister Mark Carney signed a directive reducing the consumer carbon tax to zero shortly after taking office on March 14. Carney had pledged to end the consumer carbon tax and replace it with a new “consumer carbon credit market” that rewards Canadians for making choices like leading to less emissions buying electric vehicles, heat pumps, and energy-efficient appliances, while making big polluters pay for those incentives.
The government then tabled a ways and means motion on May 27 to introduce a bill on affordability issues to remove the consumer carbon price. The bill is currently being considered in committee.
The Conservative Party, which long called for the government to “axe” the carbon tax, has criticized the Liberal government for keeping the industrial carbon tax, saying the tax should be removed from all sectors.
Matthew Horwood is a reporter based in Ottawa.