François-Philippe Champagne, federal finance and national revenue minister, has announced draft legislation introducing changes seeking to keep all Canada carbon rebates for small businesses non-taxable, with the government planning to introduce the legislation in Parliament.
With the changes intended to take effect in the fall, the draft legislation aims to lower costs, increase the money in Canadians’ pockets, and ensure that small businesses receive the rebates’ full financial benefits, according to the federal government’s news release.
Upon receiving royal assent, the proposed legislation will empower the Canada Revenue Agency (CRA) to process amended T2 corporation income tax returns for businesses that previously included the rebate in their taxable income to ensure the rebate’s exclusion from the taxable income in the T2.
In its news release, Canada said it expects the CRA to offer more guidance after the changes are operative.
Impacts of change
According to the federal government’s news release, under the draft legislation, eligible businesses need not include payments received in connection with the 2019–20 to 2023–24 fuel charge years in income for tax purposes.
Canada said the final payment made under the Canada carbon rebates for small businesses relating to the 2024–25 fuel charge year would also be non-taxable.
Per the federal government, under the proposed legislation, eligible businesses that filed their 2023 tax return after July 15, 2024, and on or before Dec. 31, 2024, likewise qualify for tax-free payments for the 2019–20 to 2023–24 fuel charge years.
In its news release, Canada added that eligible businesses filing their 2024 income tax return by July 15, 2025, will also be eligible for tax-free payments pertaining to the 2024–25 fuel charge year.
The federal government removed the federal consumer fuel charge through regulations as of Apr. 1, 2025, and later introduced legislation formally abolishing the fuel charge from Canada’s law.
“With the elimination of the federal fuel charge, we will be making our final Canada Carbon Rebate for Small Businesses payments, and as with those for previous years, they will be tax-free rebates,” Champagne said in the news release.
In provinces where the fuel charge was applicable, eligible small- and medium-sized businesses could recover part of the fuel charge proceeds from the price on pollution through the Canada carbon rebates for small businesses.
“With the consumer fuel charge gone, we are able to refocus federal carbon pollution pricing standards on ensuring that carbon pricing systems are in place across Canada on a broad range of greenhouse gas emissions from industry,” Champagne said in the news release. “In doing so, we will ensure a system that is fair and effective.”
Given the abolition of the fuel charge from statute and the winding down of the mechanisms for the return of proceeds, Canada said it would no longer move forward with the changes contemplated by the 2024 Fall Economic Statement.
The federal government noted that those planned changes would have expanded eligibility for the Canada carbon rebates for small businesses to cooperative corporations and credit unions, included a minimum payment for smaller businesses, and provided a phaseout mechanism for bigger businesses.