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💵 Canada Revenue Agency to tax the $2.5 billion small business carbon tax rebate despite decision by the Department of Finance

Monday, 10 February 2025 08:00.AM

The Canada Revenue Agency (CRA) is proceeding with taxing the long-awaited small business carbon tax rebates despite repeated commitments from the Minister of Finance, the Canadian Federation of Independent Business (CFIB) has learned. This follows months of unclear guidance from Finance and CRA on the taxation of capital gains.

In November 2024, after CFIB protested an earlier CRA decision to tax the $2.5 billion small business carbon tax rebate, the federal government quickly changed gears. Finance Minister Chrystia Freeland confirmed this on Twitter/X on November 12, 2024, stating "This rebate will be tax free." Even today, the Department of Finance website says, "the Canada Carbon Rebate for Small Businesses is a tax-free payment."

Despite this, the CRA has confirmed to CFIB in writing that the Canada Carbon Rebate for Small Businesses is considered "assistance received by the taxpayer from a government in the taxation year in which the assistance is received. As such, it is subject to income tax. This announcement (to make it tax free) and the FES were not accompanied by proposed legislative amendments."

"After waiting five years for government to get around to rebating a share of carbon tax revenue to small businesses, we now learn that Ottawa will tax the tax rebate," said Dan Kelly, CFIB president. These significant rebates were paid to 600,000 small businesses in December – averaging over $4,000 each. By comparison, the larger share of carbon tax rebates going to Canadian families are already tax free.

But as the CRA has declared these rebates as taxable, only new legislation presented in Parliament can override this decision. "This, on top of the need to prepare for the U.S. tariff threat, is another reason to resume Parliament immediately," Kelly added.

"No wonder 83% of small business owners oppose the federal carbon tax. Small businesses have been jerked around for five years and, now the CRA is administering a tax on the rebate despite government's promise," Kelly said.

CFIB is calling for:

1. Parliament to be immediately reconvened to pass legislation to make the carbon tax rebate for small business tax free.
2. Government to drop the proposed 19% increase in the carbon tax planned for April 1 pending the Liberal leadership vote and the upcoming election.
3. As long as the carbon tax is in place, the small business rebate formula should be returned to 9% of total revenue with broader access to unincorporated businesses.

SOURCE: Canadian Federation of Independent Business

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