Canada's tax on carbon rebates sparks outrage

The Canadian Federation of Independent Business (CFIB) has voiced strong concerns over a recent government decision to tax upcoming carbon tax rebates for small businesses, which are set to be issued in December. This move has caused frustration among small business owners who feel that taxing these rebates contradicts the idea of a fair carbon tax system. 

“This is deeply offensive to small firms and, frankly, a ridiculous idea,” said Dan Kelly, CFIB president. “Government is now planning to tax a tax rebate – it would be like charging income taxes on someone’s tax refund. Taxing the carbon tax rebate also throws out of the window any pretense that the carbon tax is revenue neutral to government as it will be collecting hundreds of millions in corporate income tax revenue on the rebate.” 

Initially, the Canada Revenue Agency had indicated to CFIB that these rebates would be exempt from taxes, similar to the tax-free structure of the Canada Carbon Rebate for individuals.  

“This made sense to us. But after we asked the Department of Finance for final confirmation of this information, they told us the small business rebate would be taxable as it is considered government assistance,” said Kelly. “Rebating a small portion of the carbon taxes paid by small business is about as far from government assistance as I can imagine.”    

Since its inception, the carbon tax system has been seen as particularly challenging for small businesses. The government originally pledged that small firms would receive 10% of the carbon tax revenue as rebates in 2019. However, after years of delay and persistent lobbying from CFIB, a $2.5 billion rebate fund was finally allocated to small businesses. 

Further adding to business owners’ concerns is an expected increase in the carbon tax on April 1, 2025, along with a reduction in future rebates from 9% to 5% of the total revenue. In response, CFIB has sent an open letter to Finance Minister Chrystia Freeland urging the government to reconsider this approach. 

“It’s not surprising why 83% of small business owners now oppose the carbon tax. Delaying, then taxing, then slashing promised rebates to small business are yet additional reasons why the carbon tax needs to be scrapped entirely,” said Kelly. 

CFIB encourages business owners to use its calculator to assess their rebate eligibility and to sign a petition advocating for the repeal of the carbon tax. 

Photo Credit: Pexels Mikhail Nilov