Ottawa confirms that federal carbon rebates will not be taxed
The federal government recently confirmed that rebates issued under the Canada Carbon Rebate for Small Businesses will not be taxable for the years that the fuel charge was in effect (the levy was cancelled on April 1st, 2025). That includes payments received by corporations for the 2019-20 to 2023-24 fuel charge years, along with the final payment made through the rebate for the 2024-25 fuel charge year.
To support the tax exemption, Ottawa is promising legislation in the fall.
The Canada Revenue Agency says that assuming the legislation is enacted, it will have the authority to process amended T2 returns for corporations that have already filed and included the rebate in their T2 returns for the 2024 tax year. The CRA is promising future guidance outlining a process for issuing refunds. However, the Agency has cautioned that if the legislation does not receive royal assent, affected businesses that did not include the rebate as part of their taxable income could be subject to reassessment with interest.
In its confirmation announcement, the government also noted that, “The Minister of Finance and National Revenue will specify payment rates to return to Canadian businesses the $623.1 million in proceeds for the final 2024-25 fuel charge year once sufficient information is available from the 2024 taxation year.”
Lastly, a proposal was made in the 2024 Fall Economic Statement to expand eligibility for the Canada Carbon Rebate for Small Businesses to cooperative corporations and credit unions, while adding a minimum payment for smaller businesses and introducing a phaseout for larger businesses. The government has confirmed it will no longer be moving forward with these proposals.
Armando Iannuzzi, Co-Managing Partner
For more information on the Canada Carbon Rebate for Small Businesses, contact a member of the KRP LLP team today.
