Recycling Tax Dollars:  Increased Climate Action Incentive Payments

Jose L. Riquelme, CPA, CGA

On March 23, 2022, the Federal Government announced the increased payments for the Climate Action Incentive (CAI) for the 2022-23 period and some Canadian households will soon receive over $1,000. But not through their tax filings, a change from last year.  It’s a recycling of federal carbon tax surtaxes.  Here’s what you need to know:

The CAI is a quarterly payment that applies to Ontario, Manitoba, Saskatchewan, and Alberta. As covered in a previous edition of Knowledge Bureau Report, the CAI applies to these provinces only as they do not have a Carbon Tax rate that meets the Federal standard.

According to the government, nearly 90% of the surcharge tax charged on fossil fuels gets returned to residents of these provinces via the CAI. The remaining 10% is allocated “to support farmers, small businesses, Indigenous groups, schools, universities, and municipalities. This is meant to be a revenue neutral tax, so no proceeds are retained at the federal level.

Per the press release from the government, the increased amounts will mean that a family of four will receive $745 in Ontario (up from $600), $832 in Manitoba (up from $720), $1,101 in Saskatchewan (up from $1,000), and $1,079 in Alberta (up from $981). These benefits are subject to a 10% supplement for residents outside the major metropolitan areas on these Provinces. These payments are made concurrently with the GST/HST credit on a quarterly basis.

The 2021 Federal Budget introduced a change to this payment from a refundable credit (a cash benefit that either was refunded or reduced income taxes payable) – a more efficient approach as it cheaper to administer and actually offers immediate relief instead of piecemeal benefits.  However, as mentioned above, the new method of payment mirrors the GST/HST credit. As a transition, the July payment will feature a “double-up payment for the first two quarters of the 2022-23 fuel charge year (April-June and July-September)”. Subsequent regular payments will apply.

This seems like great news for families that are not only coping with off-the-charts fuel prices, but also with decades-high inflation affecting almost every aspect of the costs of living. The increased CAI is welcomed; however, this is “recycled” money being returned to taxpayers becausetheir provinces have low carbon taxes and are being charged a surcharge by the Federal Government as part of its Climate Action Agenda. Real relief would be for the Federal Government to offer localized income tested rebates to offset the high costs of energy and groceries.

Additional educational resources: Don’t miss this opportunity to take Canada’s most up-to-date and comprehensive Advanced T1 Tax Update Course for Professional Tax Accounting firms and their new and returning staff who will file 2021 T1 Returns. This is Canada’s #1 tax training program for busy practice owners who need to recruit and train staff in time for this tax season. 

In addition, stay up-to-date with the latest technical news for tax and financial professionals by attending the May 18 CE Summit, when the most current issues and tax legislation are discussed to help advisors help their clients make better financial decisions.