More Bad News on Canada Carbon Rebate

Evelyn Jacks

With the prorogation of parliament many tax provisions in the April 16, 2024 federal budget, the August 12, 2024 legislative proposals and the Fall Economic Statement of December 16 have fallen into a state of confusion.

This includes the tax status of the long-awaited Canada Carbon Rebate for Business (CCR-B) and whether the Rural Supplement to the CCR for individuals will be increased on April 1, 2025.  Here is the latest news:    

CCR-B is Taxable.  Despite the Finance Minister’s announcement that it will be tax free, it will not be for the 2024 year unless amending legislation comes later, once Parliament readjourns and passes amending tax law.

This is because Clause 35 of Bill C‑69, which was passed into law on June 20, 2024, added new section 127.421 to the ITA which considers the rebate to be assistance received by the taxpayer from a government in the taxation year in which the assistance is received.  This despite the fact that the lump sum received is for the 2019 to 2023 calendar years.  In the absence of amending legislation to make the CCR-B tax free, it would be fairer to allow adjustments to prior filed returns to include the income when it was supposed to have been paid by the government. 

This would make sense, too, because the calculations for the amount of the rebate are determined by a “fuel return” set by the Minister of Finance for a designated province for the calendar year.  This rate is then multiplied by the total number of persons employed by an eligible corporation in the calendar year.  Corporations with more than 499 employees don’t qualify.  Plus the corporation must reside in (or employ people in) a designated province, which has changed over the years.  

What’s a designated province?  Here’s a chart to explain this:

A “fuel charge year” runs from April 1 to March 31 and to qualify for the retroactive rebate for the 2019-2020 to 2023-2024 fuel charge years, the small business must have been a CCPC and filed a corporate tax return no later than July 15, 2024.

However, even here there is a change that is pending legislation.  On October 1, 2024, it was announced that if a corporation filed their 2023 tax return after July 15, 2024, and on or before December 31, 2024, it would be eligible for a CCR-B payment for the 2019-2020 to 2023-2024 fuel charge years, subject to Royal Assent of legislation.  These companies can expect the payment sometime in the future, in other words.

As to when the CCR-B is deemed to be paid, Finance Canada has announced the following: “to enable the Canada Revenue Agency to deliver these payments by the end of 2024, pursuant to subsection 127.421(2) of the Income Tax Act, the date specified by the Minister of Finance is October 1, 2024.”

Will the Canada Carbon Rebate Be Expanded?  The Fall Economic Statement announced that for small businesses with between 1 and 20 employees, an enhancement would be made to the CCR-B.  Further, the Rural Supplement for individuals would be extended to more rural areas.  These enhancements are now on hold as there was no draft legislation tabled for any of the provisions in that statement.

Bottom Line.   The taxable Canada Carbon Rebate for Small Business must indeed be reported in income in 2024. Should changes be made to legislation in the future, those returns will have to be amended to recover taxes payable.