Small Businesses Still Being Taxed On Carbon Rebates, Federation Says

Small businesses across Canada are still being taxed on their carbon tax rebates despite a commitment from the former finance minister that they would be tax-free, says the Canadian Federation of Independent Business (CFIB).

The business group says it has been informed by the Canada Revenue Agency that the rebate is considered government assistance to taxpayers and that it’s subject to income tax.

The federation says the CRA also told it that former finance minister Chrystia Freeland’s announcement last year that the rebate will be tax free, and the fall economic statement that made a similar commitment, “were not accompanied by proposed legislative amendments.”

The prorogation of Parliament is not making the situation any easier, says CFIB president and CEO Dan Kelly, as only new legislation presented in Parliament can override this decision.

The Canada carbon rebate for small businesses was a measure introduced in Budget 2024, in which $2.5 billion of carbon price revenue would be paid back to some 600,000 small- and medium-sized businesses.

The CFIB, Canada’s largest association of small and medium-sized businesses, is calling for Parliament to be reconvened to pass legislation to make the rebate tax free.

It also wants the government to freeze a 19 percent increase in the carbon tax planned for April 1 and return the small business rebate formula to nine per cent of total revenue as long as the carbon tax is in place.