Owners of small and medium-sized businesses should soon receive their long-awaited carbon rebate.
Over the next few weeks, the federal government will return more than $2.5 billion to around 600,000 businesses through the Canada Carbon Rebate for Small Businesses. Keep reading as we discuss the Key Insights regarding this rebate, including eligibility criteria, provincial rates and payment methods.
Background on Carbon Pricing in Canada
In 2019, Canada implemented a federal carbon pollution pricing system, commonly known as the carbon tax. This system places a price on carbon emissions in an attempt to encourage businesses and individuals to reduce their carbon footprint.
One component of this system is the federal fuel charge, which adds a regulatory charge to fossil fuels like gasoline and natural gas. The federal fuel charge applies in provinces without their own carbon pricing mechanisms that meet federal standards.
Purpose of the Rebate
The Canada Carbon Rebate for Small Businesses is designed to offset some of the costs associated with the federal carbon pricing system. By returning a portion of the fuel charge proceeds directly to eligible small and medium-sized businesses, the government aims to alleviate financial pressures while still promoting environmental responsibility.
Who Qualifies for the Canada Carbon Rebate?
To be eligible for the rebate, your business must meet the following criteria:
- Be classified as a Canadian-controlled private corporation (CCPC) resident in Canada
- Have between 1 and 499 employees
- Have at least one employee operating in one of the designated provinces where the federal fuel charge applies during the relevant calendar year(s)
When counting employees, include all individuals who received a T4 slip, such as full-time, part-time, seasonal workers, and any family members on the payroll.
Provincial Applicability
The rebate only applies to businesses operating in provinces where the federal fuel charge is in effect. These designated provinces are:
- Alberta
- Manitoba
- New Brunswick
- Newfoundland and Labrador
- Nova Scotia
- Ontario
- Prince Edward Island
- Saskatchewan
It’s important to note that the federal fuel charge came into effect at different times in these provinces. For instance, Alberta’s fuel charge started on January 1, 2020, while in New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador, it began on July 1, 2023. This timing affects the rebate amounts for businesses in these regions.
Calculating The Canada Carbon Rebate for Small Businesses
On October 1, 2024, the federal government announced the rebate amounts for each of the eight provinces operating under the federal fuel charge. The specified payment rate per employee varies by province and covers the period from 2019-20 to 2023-24. These rates reflect the differences in fuel charge proceeds collected in each province and the number of eligible businesses. The rates are higher in provinces where the fuel charge has been in effect longer or where more proceeds have been collected.
The rebate amount your business can expect to receive is calculated using a straightforward formula:
Rebate Amount = Number of Eligible Employees x Specified Payment Rate per Employee
To help estimate the total amount your corporation is eligible for, use the CRA’s Canada Carbon Rebate for Small Businesses Estimator.
How to Get Your Canada Carbon Rebate
To receive the rebate, your corporation must have filed its 2023 corporate income tax return by July 15, 2024. If you missed the July deadline, the government is proposing to extend eligibility to businesses that file by December 31, 2024. However, payments for corporations who file late will only be issued if/when the necessary legislation receives Royal Assent.
The good news is that you do not need to apply for the rebate. The Canada Revenue Agency (CRA) will automatically calculate and issue the payment to eligible businesses based on the information provided in their filed corporate income tax returns.
Payment Methods
Businesses will receive their rebates through one of two methods:
Direct Deposit – If your business is registered for direct deposit with the CRA, you can expect to receive the payment by December 16, 2024. Direct deposit is the fastest and most secure method of receiving funds.
Cheque – If not registered for direct deposit, a cheque will be mailed to your business address on file, with an expected arrival by December 31, 2024. Ensure that your mailing address with the CRA is up to date to avoid any delays.
Tax Treatment of the Rebate
The Canada Carbon Rebate for Small Businesses is considered government assistance. As such, the rebate amount must be included in your business’s taxable income for the year in which it is received.
Final Thoughts
The Canada Carbon Rebate for Small Businesses represents a significant opportunity for eligible businesses to recoup some of the costs associated with the federal carbon pricing system. This rebate not only eases financial pressures but also enables businesses to continue contributing positively to Canada’s economy and environmental goals.
This article was written by the NVS Professional Corporation team, your knowledgeable Barrie and Markham accountants. The content is intended as a general guide for informational purposes only. For specialist advice tailored to your specific situation, please reach out to our expert team.
