Tag: CRA

News and Insights

Understanding Canada’s Carbon Tax and Recent Changes

March 16, 2025

Sector:

Canada’s carbon tax has been a key element of the government’s strategy to combat climate change. Introduced in 2019, it aimed to reduce greenhouse gas emissions by applying a levy on fossil fuels, encouraging individuals and businesses to adopt cleaner energy sources.

Business Tax Treatment

Businesses, particularly small and medium-sized enterprises, were subject to the carbon tax on fuels used in operations. To mitigate financial impacts, the government introduced the Canada Carbon Rebate for Small Businesses. Under the current legislation, this rebate is considered taxable income.  This means it must be included in your taxable income when filing your T2 corporation income tax return for the year in which you received the rebate.

The Government of Canada has proposed that the rebate be tax-free. However, a legislative amendment is required to implement this proposal.

If a legislative amendment is enacted, the CRA will have the authority to process amended T2 corporation income tax returns.

Personal Tax Treatment

For individuals, the carbon tax was applied to everyday fuels such as gasoline and natural gas. To help offset increased costs, the government provided the Canada Carbon Rebate (CCR), formerly known as the Climate Action Incentive Payment (CAIP). This rebate is tax-free and intended to return a majority of the collected tax to households, with amounts varying based on family size and province of residence.

Recent Elimination of the Consumer Carbon Tax

As of March 2025, the federal government has eliminated the consumer carbon tax as part of an effort to address affordability concerns. This change means that individuals will no longer see a carbon tax applied to fuels such as gasoline and natural gas, and the Canada Carbon Rebate for individuals will be discontinued accordingly.

While the consumer carbon tax has been eliminated, businesses should stay informed about any ongoing environmental regulations and incentives that may impact their operations.