Small businesses will continue paying taxes on carbon rebates until legislation is presented to make the payments tax-free, according to the federal Finance Department.
Despite a promise late last year from then finance minister Chrystia Freeland that businesses would not have to pay taxes on the rebates, the Canadian Federation of Independent Business (CFIB) recently said the Canada Revenue Agency was proceeding with taxing them.
On Thursday, Finance spokesperson Benoit Mayrand confirmed the government still intends to make the payments tax-free and that “a legislative amendment to implement this change will be tabled at the earliest opportunity.”
The Finance official said once the necessary legislative steps have been taken, businesses that paid taxes on the rebates could file an amended tax return to receive that money back.
Carbon tax rebates for small businesses are taxable, despite assurances
About 600,000 small businesses began receiving long-awaited rebates last fall from the $2.5-billion in carbon pricing revenue the federal government began collecting more than five years ago.
CFIB president Dan Kelly said it’s good the government still intends to make the payments tax-free, “but there is no certainty that that’s actually going to make it across the finish line.”
Prime Minister Justin Trudeau prorogued Parliament until March 24, but it’s unclear how long MPs will sit in the House of Commons before an election is called. All major opposition parties have vowed to bring down the government in the spring.
The carbon rebate for businesses is the latest tax-related confusion caused by the shuttering of Parliament. The federal government recently announced it would delay the increase to the capital gains inclusion rate to Jan. 1, 2026, after the measure was left in limbo by prorogation.
Mr. Kelly said Parliament should be brought back not only to make the necessary legislative changes for the carbon rebate, but to allow the government to respond to potential U.S. tariffs with help for affected industries.