Canada's Carbon Rebate for Small Businesses: What You Need to Know

As we approach the end of 2024, Canadian small businesses have something to look forward to: up to five years of carbon tax rebates. This initiative, announced by the Canadian federal government aims to return a portion of the carbon tax revenues collected over the past five years.

However, beneath the surface, there are several concerns and nuances that small business owners should be aware of.

The Basics

Starting in December 2024, the Canadian government will distribute over $2.5 billion in carbon rebates to approximately 600,000 small and medium-sized businesses. This rebate covers the period from 2019-2020 through 2023-2024 and is designed to offset some of the financial impacts of the federal fuel charge.

Who's Eligible?

The rebate is specifically targeted at Canadian-Controlled Private Corporations (CCPCs) that meet the following criteria:

• Employee Count: Have between 1 and 499 employees, based on the number of T4 slips issued over the past five years. This includes the business owner and family members (if paid a salary), all full-time and part-time workers, and all positions that have turned over during the year.
• Contractors: Contractors are not employees and do not receive T4 slips. They are not included in this rebate calculation.
• Location: Operate in provinces where the federal fuel charge applies: Alberta (AB), Saskatchewan (SK), Manitoba (MB), Ontario (ON), and the four Atlantic provinces (NS/NB/PE/NL). Note that British Columbia (BC) and Quebec (QC) have separate systems and are not included in this announcement.
• Tax Filing: Have filed a tax return for the tax year ending in 2023 by July 15, 2024.

If you file after July 15, 2024, you may still be eligible for the rebate, but payments can't be issued until the extended deadline is officially approved through Royal Assent.

Where can I find the number of T4 slips filed per year?

1. Login to CRA My Business Account, go to Payroll, click the RP number, then click on the Returns tab - view the table of slip totals per year
2. Look at the T4 summary (line 88) for each year. If you amended or added any new returns for that year, ensure to count those as well.

How Much Can Businesses Expect?

The rebate amount varies based on the number of employees and the province of operation.

For example:

• A business in Ontario with 10 employees can expect to receive $4,010
• A business in Nova Scotia with 30 employees will receive $3,570
• A business in Alberta with 35 employees will receive $20,685

‍

‍

However, there's a critical point to consider:

• Disproportionate Impact: The carbon tax system appears to be disproportionately affecting small businesses. They contribute up to 40% of carbon tax revenues but are only eligible for 5% in rebates—down from the previous 9%, according to CFIB estimates.¹
• Rebate Limitations: The number of T4s issued can be a frustrating metric. For instance, businesses that employ a large number of part-time workers or students might exceed the 499-employee cap due to turnover, despite having fewer full-time equivalent (FTE) employees. This exclusion means some businesses won't qualify for the rebate, even if they employ fewer people on a full-time basis than larger companies that do qualify.

‍

The Process

One of the notable aspects of this rebate is its simplicity. Eligible businesses don't need to apply. The Canada Revenue Agency (CRA) will automatically calculate and issue payments based on the information they have on file.

Timing

• Businesses registered for direct deposit with the CRA can expect to receive their payments by December 16, 2024.
• Those receiving payment by cheque will see funds arrive by December 31, 2024.

Tax Treatment

• On November 12, 2024, Deputy Prime Minister and Finance Minister confirmed that this rebate is tax-free for recipients.
• At year-end, corporations should record the rebate amount as income in their financial statements. However, since it is tax-free, it will not increase the corporation's taxable income, thereby not resulting in additional tax liability.

‍

Who's Not Eligible?

It's important to note that not all businesses qualify for this rebate. The following types of businesses are not eligible:

• Sole proprietorships
• Partnerships (including Limited Liability Partnerships)
• Non-CCPC corporations
• Non-profit organizations
• Businesses operating in BC and QC (due to separate systems)
• Businesses with over 499 employees, based on T4 slips issued over the past five years

Looking Ahead

This isn't a one-time event. The government plans to continue this rebate process annually for future fuel charge years, providing ongoing support for small businesses as Canada works towards its climate goals.

Industry Concerns

Several concerns have been raised regarding the carbon rebate system:

1. Rebate Amount vs. Tax Paid: While the government touts the $2.5 billion rebate as a win for small businesses, this represents less than one-quarter of the amount actually paid by businesses, according to CFIB estimates.
2. Desire to Scrap the System: Despite the promised rebates, a staggering 83% of small businesses want the entire federal carbon tax system scrapped, highlighting a significant disconnect between policy intentions and business realities.
3. Reallocation of Funds: The government's decision to cut small business carbon tax rebates by $500 million in 2024 to fund higher consumer rebates raises questions about the equitable distribution of the tax burden.
4. Investment in Green Technologies: While the rebate is a step in the right direction, it doesn't address the fundamental issue that many small businesses face: they're paying more into the system than they're getting back, potentially hampering their ability to invest in green technologies.

‍

The Bottom Line

For eligible small businesses, this rebate represents a significant return of funds and acknowledges the challenges they face in adapting to carbon pricing.

As we move closer to the distribution date, it's crucial for business owners to ensure their information with the CRA is up-to-date (direct deposit info, filings up to date, etc). While no action is required to receive the rebate, accurate records will ensure a smooth process.

Stay tuned for more updates as we approach December 2024. This carbon rebate could provide a welcome boost to many small businesses across Canada as they continue to navigate the evolving economic landscape.

‍