After 5 years, Budget 2024 lays out promised small business carbon rebate

Click to play video: 'Small businesses owed $300 million in stalled carbon tax rebates, CFIB says'
Small businesses owed $300 million in stalled carbon tax rebates, CFIB says
The CFIB is bringing attention to billions in carbon tax rebates that have yet to be distributed back to small and medium-sized businesses across Canada by the federal government – Mar 11, 2024

The federal government plans to “urgently return” money collected through the carbon price’s fuel charge to small businesses, making good on a commitment from 2019 to return that money.

Billed as the Canada Carbon Rebate for Small Businesses, the plan involves more than $2.5 billion that has been collected through the federal fuel charge in provinces where Ottawa’s carbon price applies over the last five years.

This includes Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

While the plan is described in its name as a “rebate,” the wording in the federal budget describes it as a “refundable tax credit” that will be directly returned to eligible businesses through direct payments from the Canada Revenue Agency, “separately from CRA tax refunds.”

An estimated 600,000 businesses with 499 or fewer employees will be eligible.

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Given the cost of living focus in Budget 2024, TD Bank senior economist Francis Fong says he has his doubts about whether this extra money flowing back to small businesses will result in significantly lower prices.

“I think it’s going to be difficult to separate the impact of higher carbon taxes as they rise year after year after year with this kind of broader cost of living affordability crisis that we’re currently facing,” Fong told Global News.

“So will this go a long way in helping to address affordability challenges? I suspect the answer is no, but it’ll go some way in mitigating that.”

As outlined in the budget document, to receive the refund businesses will have to file their 2023-24 taxes by July 15, 2024.

The Canadian Federation of Independent Business has long called for the money collected in the fuel charge to be given back to small businesses.

However, the CFIB has previously called on the government to reverse the rate of the fuel charge set aside for businesses from nine per cent to five per cent. This follows a commitment to double the rural rebate top-up, which still needs to be passed by the House of Commons.

Click to play video: 'Small businesses owed $300 million in stalled carbon tax rebates, CFIB says'
Small businesses owed $300 million in stalled carbon tax rebates, CFIB says

This refund structure is already built into the federal carbon pricing legislation. The overwhelming majority of refunds from the money collected through carbon pricing, roughly 90 per cent, goes to households, with the updated structure for the new rebate laying out that five per cent will go to small and medium-sized businesses, and the remainder will be returned to Indigenous communities.

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Environment and Climate Change Canada is still working with Indigenous communities on how best to manage the return of those portions of the fuel charge proceeds.

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The inclusion of the small business rebate in the federal budget follows a heated political debate on the most recent carbon price increase from $65 per tonne to $80 per tonne. The opposition Conservatives and seven premiers all called for the increase to be at least paused citing cost of living concerns.

In response, Prime Minister Justin Trudeau referenced a March 2023 Parliamentary Budget Officer report saying eight out of 10 Canadians receive more than they pay through the recently renamed Canada Carbon Rebate, which is the portion that goes to households.

As part of the budget, a new amendment is being proposed to require banks to follow government naming conventions on direct deposits like the Canada Carbon Rebate. That would mean banks need to show the deposits arriving into consumers’ bank accounts under that name.

What about other tax credits?

 As part of the suite of climate change-related measures in the budget, the government plans to implement the previously announced Clean Electricity Tax Credit, to the tune of $7.2 billion over the first five years of the program.

Between 2029-30 and 2034-35, the government intends to increase the value of the tax credit to $25 billion.

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The government’s goal is for Canada to have a net-zero electricity gird by 2035.

In an effort to spur investment in low emission electricity, this document sets out to establish a 15 per cent tax credit for private companies to build new or expand generation in wind, solar, hydroelectric, geothermal, waste biomass and nuclear power.

Click to play video: 'Manitoba focused on hitting net zero while delivering affordability: premier'
Manitoba focused on hitting net zero while delivering affordability: premier

The tax credit is also open to natural gas, as long as the project incorporates carbon capture and storage.

Some provinces, like Saskatchewan, have Crown corporations that provide electricity generations. As outlined in the budget, these provinces are eligible to apply for the tax credit as long as they publicly commit to achieving net-zero electricity by 2035 and pass any savings on to ratepayers by lowering electricity bills. The deadline for this is March 31, 2025.

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This could add to the political fight on climate policy between Ottawa and Saskatchewan, as that province’s stated goal on achieving net-zero electricity is 2050, 15 years after the federal target.

What’s new with home heating affordability plans?

 Home heating is another central driver of fuel charge revenue, with $903.5 million targeted at trying to reduce costs but the bulk of this funding will not be in place until the next fiscal year.

The government plans on establishing an $800-million program to provide direct funding for low-to-middle income households on the installation of energy-efficient retrofits on their heating systems. This fund is set to rollout over five years, starting in 2025-26.

An additional $73.5 million is set aside to modernize various energy efficiency programs for apartment building owners, and $30 million to develop a standardized approach to home energy labelling to help home buyers better understand how efficient a property is.

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Click to play video: 'Saskatchewan government won’t remit carbon levy to Ottawa'
Saskatchewan government won’t remit carbon levy to Ottawa

Home heating became a key driver in the renewed opposition to the federal carbon price, when Trudeau announced a three-year pause on the carbon price for home heating oil. The pause applies nationally, but critics argue it disproportionately benefits Atlantic Canada.

This led to Saskatchewan ending its collection and remittance of the carbon price on home heating, which Statistics Canada said reduced inflation in that province.

To go along with the heating oil pause, Trudeau also pledged to work with the provinces to help buy heat pumps for lower income households that use heating oil, as a means of reducing the emission intensity and fuel charge after the pause concludes.


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