Companies will be forced to pay taxes on carbon price rebates despite promises by the federal government that the money would be tax-free, meaning $2.5-billion worth of rebates paid in 2024 will be subject to undue taxation, according to the Canadian Federation of Independent Business.
Dan Kelly, president and chief executive officer of the CFIB, said the situation is a result of the government proroguing Parliament last month, leaving it unable to legislate the government’s promise that small businesses won’t have to pay tax on the tax rebate.
The problem comes after years of hand-wringing around the dispersal of carbon tax rebates that were intended for small businesses. The government introduced carbon pricing at the federal level in 2019, and the system works by charging large industries that produce carbon pollution and individuals who purchase fuels such as gasoline. Most of that money is then doled out as rebates to Canadians.
Mr. Kelly said 90 per cent of the tax money was intended to be rebated, and individuals already receive quarterly tax-free rebates from the program. The rest was meant for small businesses, but for five years the government was unable to come up with a system to disperse that money to those companies.
A simplified system was set up after work by the CFIB and then finance minister Chrystia Freeland in late 2019, which resulted in roughly 600,000 small businesses receiving an average of $4,000 each in rebates in December, 2024. But Mr. Kelly says that money was declared a business subsidy by the Canada Revenue Agency because of the way the money was dispersed, meaning it would be taxable.
“We said, ‘Wait a minute. That was never the intention. You’re taxing a tax rebate?’” said Mr. Kelly. “That doesn’t make any sense at all.”
Mr. Kelly said Ms. Freeland then assured the CFIB late last year that the rebate would not be taxed, and the Department of Finance still calls the rebate tax-free on its website where it describes the credit. But Ms. Freeland resigned shortly after that commitment and the government then prorogued Parliament, leaving the proposed change in a lurch.
Mr. Kelly said the CRA confirmed to him that without any proposed legislation to change the rebate system, the carbon rebate for small businesses will still be taxable.
The CRA and Finance Department did not provide comment to The Globe and Mail before deadline.
Mr. Kelly said this issue could easily be forgotten with the government likely to fall and an election triggered when Parliament reconvenes, scheduled for March 24.
“It seems there’s still willingness to proceed, but without Parliament in session, even the government cannot make this change,” said Mr. Kelly. He argues that businesses are already dealing with enough economic uncertainty because of tariff threats from the U.S. government.
The CFIB is calling on Liberal leadership candidates and Conservative Leader Pierre Poilievre to commit to tweaking legislation to ensure that the rebates will be untaxed.
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