Small businesses will still be taxed on carbon rebate while Parliament is suspended
The recent confirmation from the federal government regarding small businesses having to pay taxes on their carbon rebate has caused quite a stir, especially since promises were made that this would not be the case. Due to the current inability of Parliament to pass legislation exempting these payments from income taxes, small businesses are left in a tricky situation. However, there is a glimmer of hope as the government has stated that once legislation is passed, businesses can apply for a rebate on the taxes paid on their rebate.
Dan Kelly, the president and CEO of the Canadian Federation of Independent Business, has described the situation as a “mess,” highlighting the challenges faced by small- and medium-sized businesses with minimal carbon footprints. These businesses are subjected to paying the carbon price on fuel inputs, similar to individual consumers, when purchasing gas for fleet vehicles or powering their offices.
Initially, the government had planned to allocate seven per cent of revenues collected from the consumer carbon levy to assist smaller businesses in reducing their energy consumption. Unfortunately, these programs did not materialize, resulting in over $2.5 billion in owed carbon price revenue to businesses by 2024. It wasn’t until the 2024 budget announcement by former finance minister Chrystia Freeland that the owed funds were finally distributed to 600,000 small and medium businesses in December.
Despite Freeland’s declaration that the rebates would be “tax free,” this promise was not fulfilled due to the parliamentary filibuster that halted all business in the House of Commons and the subsequent prorogation of Parliament until the end of March. Marie-France Faucher from the Finance Department has assured that efforts will be made to make the rebate tax-free through legislative amendments, but this process could still take several months.
The Canadian Federation of Independent Business is advocating for Parliament to reconvene and pass legislation to exempt the rebate from taxes, increase the share of revenues paid to businesses to nine per cent, and prevent the scheduled levy increase on April 1. There are concerns about whether small businesses will indeed be repaid, especially if carbon tax rebates become a low priority for future governments.
If legislation is successfully passed, small businesses may need to file an amended tax return to adjust their taxable income for the year. The process of repayment for these businesses remains unclear, with possibilities ranging from cheque payments to credits on their CRA accounts. The uncertainty surrounding the upcoming election and the need for legislative action adds further complexity to the situation.
In conclusion, the saga of carbon tax rebates for small businesses continues to unfold, with many unknowns still looming on the horizon. The hope is that a resolution will be reached soon to provide clarity and stability for these businesses amidst the political and economic uncertainties of the times.
