The federal government has confirmed that small businesses will be taxed on their carbon rebates despite prior assurances of tax exemption. This is due to Parliament’s inability to pass the necessary legislation to make the rebates tax-free. The government says that if such legislation is eventually passed, businesses will be able to claim a rebate for the taxes already paid.
Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), criticized the situation as a “mess.” Small- and medium-sized businesses, which pay the carbon price on fuel inputs like individual consumers, continue to bear the financial burden while awaiting clarity.
Initially, seven percent of revenues from the consumer carbon levy were earmarked for small businesses to reduce energy use, but those programs failed. By 2024, more than $2.5 billion in carbon price revenue was owed to businesses for five years of levy payments. In the 2024 budget, former finance minister Chrystia Freeland announced these payments would be distributed to 600,000 small businesses, a process completed in December.
In November, Freeland declared the rebates tax-free, but legislative delays and a fall filibuster stalled the process. Now, with Parliament prorogued until March and a possible election looming, the tax exemption remains unresolved.
Finance Department spokesperson Marie-France Faucher confirmed the government’s commitment to making the rebate tax-free, but implementation could take months. Faucher stated that once legislation is enacted, businesses that have filed returns can amend them to adjust their taxable income.
Meanwhile, the CFIB has urged Parliament to pass the required legislation, increase the share of carbon revenue allocated to businesses to nine percent, and halt the scheduled April 1 levy increase. Kelly expressed concern over repayment certainty, especially under a potential future government that might deprioritize carbon tax rebates.
Kelly added that requiring small businesses to amend tax returns for adjustments would be burdensome, and many might neglect to do so. He warned that the issue remains far from resolved, with political and economic uncertainties adding to the strain on small businesses.
Source: Swifteradio.com
