Santa or Grinch? A Tax Break for Some, New Costs for Others

Geoff Currier and Evelyn Jacks

As with all things tax, the federal government’s recent announcement of a $250 Working Canadians Rebate comes with confusion and complexity.  The provision was effectively halted in the House of Commons less than a week after its announcement and is now in jeopardy of coming to fruition for 2025. Here’s what you need to know however, to prepare to receive it, should the Liberals and NDP parties come to agreement on its structure:

The Backdrop – Working Canadians Rebate:  Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland announced on November 21^st that $250 rebate cheques would be sent out sometime this spring to people who filed their 2023 tax returns and met individual net income requirements, amongst other tax filing criteria. For example, in order to be eligible, taxpayers must have claimed a tax credit for Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions. This applies to employees or self-employed people who earned at least $3,500 and are not otherwise CPP exempt.

And this is where the problems with the proposal arose.  Many people were left out.

Who is Left Out.   Taxfilers who do not contribute to the CPP would not receive the rebate under its original design. Neither will people who are not tax filers or those who derive their income from pensions or investment income or investors in real estate.  Also potentially excluded are vulnerable disabled people,  who are still waiting for the long-anticipated Canada Disability Benefit to be initiated, and students if they don’t meet the CPP requirements.

The Finer Details.  The $250 WCR would be tax free and, at least so far, only available to Canadians who worked and earned up to $150,000 in individual net income (line 23600 of the tax return) in 2023.  Further debate on the design of the program will determine whether this high income level will remain in place.  In addition, tax filers must meet the following conditions.

• The 2023 tax return must be filed no later than December 31, 2024.  It is therefore critical that taxfilers who are behind in this annual requirement get caught up before year end, whether or not the WCR is passed.
• The tax credit for Canada Pension Plan or Quebec Pension Plan contributions on employment or self-employment earnings must have been claimed under the original design.  Remember that if workers earn less than the basic exemption of $3500, there will be no WCR. This leaves low income students and disabled people out of the equation.
• The tax credit for Employment Insurance (EI) or Quebec Parental Insurance Plan (QPIP) premiums on employment or self-employment earnings is claimed (line 31200 or 31217 on the T1. However note that most self-employed people will not qualify for the credit as few opt to make the EI contributions for special benefits like maternity leave). 

In the alternative, taxfilers will qualify for the rebate if they reported income from EI or QPIP benefits; which is curious as this is a “Canadian Workers Rebate”.

• The taxfiler must be a resident of Canada on March 31, 2025; which provides some indication of the timing of the benefit:  likely arriving on or about April of 2025.
• The taxfiler must also not have been incarcerated for a period of at least 90 days immediately prior to April 1, 2025; and,
• The rebate will not be paid for taxpayers who are deceased on April 1, 2025.  However, those filing terminal returns for people who died before this can expect to receive the rebate; so it’s important to get those 2023 tax returns filed before the end of 2024. 

The Real Cost.  It's estimated that the rebate cheques will cost the treasury about $4.68 billion. This move, and a GST holiday, will add to Canada’s national debt which has doubled in the last nine years and now sits at a heretofore unimaginable $1.4 trillion. The cost of servicing that debt for 2024-25 is estimated to be over $54 billion, growing by ten billion more by the end of this decade.  The Working Canadians Rebate, essentially, amounts to deferred taxation, as the government has borrowed money to provide it.

Looking closely at the October estimates for GST/HST revenue growth from the Parliamentary Budget Officer, the tax increases to come are well described. The increases in GST/HST revenues to be collected will be in the range of 25%: from $51.2 Billion in 2023-24 to $63.8 Billion in 2029-2030.

Bottom Line:  For individuals a clear take-away is always file tax returns on time; one never knows when a new politically-inspired tax rebate might appear. 

For small business owners, consider that 2024 profits may have to take a back seat to some behaviorial finance -  delayed shopping for those wishing to take advantage of the new GST/HST holiday – and some new tax collection expenses forced by this late-in the day announcement.    

For the readers of this article, is it Santa or the Grinch who is rearing his head on December 14?  Weigh in on Knowledge Bureau Report’s Year End Poll Question:

Do you agree the $250 Working Canadian Rebate should be passed into law to provide tax relief to individuals with working net income under $150,000, who also contribute to the CPP?