Sharon Turner
In an exciting development for small and medium-sized businesses across Canada, the Canada Revenue Agency (CRA) and the Minister of Finance have announced that the final round of Canada Carbon Rebate for Small Businesses will be tax-free. This crucial change ensures that businesses will keep the entire value of the rebate, without any deductions for taxes.
This new tax treatment, confirmed through a draft legislation released on June 30, 2025, applies to both past and final rebate payments under the fuel charge framework, offering financial relief to eligible businesses in several provinces. Here’s everything you need to know about the tax-free rebate, eligibility, deadlines, and more.
What is the Canada Carbon Rebate for Small Businesses?
The Canada Carbon Rebate for Small Businesses is a refundable tax credit automatically issued by the CRA to eligible businesses. The goal is to return a portion of fuel charge proceeds to corporations operating in provinces where the federal fuel charge applies.
This rebate is automatic—businesses don’t need to apply. Instead, they receive the funds based on their tax filings and employment activity in designated provinces.
Legislative Change: Rebate Payments Are Now Tax-Free
In a major policy update, François-Philippe Champagne, the Minister of Finance and National Revenue, introduced draft legislation to ensure that all rebate payments made under this program will not be subject to taxation. This tax-free status applies to:
- Rebate payments from the 2019–20 to 2023–24 fuel charge years
- The final payment for the 2024–25 fuel charge year
This move guarantees that businesses can keep the full value of the rebate, which will significantly enhance financial recovery and support climate transition efforts.
How to File Your Taxes: Guidance for 2025
The CRA has provided specific instructions for businesses on how to report the rebate on their corporate income tax returns (T2) based on their filing status:
1. If You Haven’t Filed Your Return Yet
If your business has not filed its T2 return yet, you can exclude the rebate from income in your return for the year it was received. However, if the legislation does not receive Royal Assent, the CRA may reassess the return and apply interest on underreported income.
2. If You Have Already Filed and Included the Rebate
If your business has already filed its T2 return and included the rebate as taxable income, the CRA will allow you to amend your return once the new law is passed.
The CRA also plans to take proactive reassessments to reduce administrative burden on businesses. However, in some cases, businesses may need to cooperate with the CRA to confirm details.
Final Payment Details: How It Will Work
The 2024–25 fuel charge year will be the last year businesses can receive this rebate. Here are the essential details:
- T2 Tax Return Deadline: Businesses must file their 2024 T2 tax return by July 15, 2025.
- Rebate Eligibility: The CRA will automatically determine whether your business qualifies for the rebate based on the filing.
- Payment Calculation: Payment amounts will follow the same method used in previous years (2019–2024).
- Once the Finance Minister sets the payment rates for each province, the CRA will issue the final rebate payments.
These final rebates will ensure that all fuel charge proceeds are returned to businesses in the provinces where they were collected.
Eligibility: Who Can Claim the Rebate?
To qualify for the Canada Carbon Rebate, a business must meet the following criteria:
- Be a Canadian-controlled private corporation (CCPC).
- Operate in a designated province where the federal fuel charge applies.
- Have employed at least one individual in a designated province during the applicable fuel charge year.
Designated Provinces Include
- Alberta
- Saskatchewan
- Manitoba
- Ontario
- New Brunswick
- Nova Scotia
- Prince Edward Island
- Newfoundland and Labrador
Businesses in non-designated provinces (such as Quebec, British Columbia, Yukon, Northwest Territories, and Nunavut) can still qualify if they employed workers in designated provinces.
Retroactive Rebates (2019–2024): Deadlines and Eligibility
For businesses that missed earlier filing deadlines, there’s still an opportunity to claim retroactive rebates. If your business files its 2023 tax return between July 15 and December 31, 2024, you may still qualify for rebates covering 2019–2020 to 2023–2024, provided the new legislation is enacted.
No action is required—CRA will issue these payments automatically at a later date, allowing businesses another chance to benefit before the program ends.
Why Is the Rebate Ending After 2024–25?
The federal fuel charge will be removed after April 1, 2025, meaning the need for the rebate program will no longer exist. The 2024–25 fuel charge year will be the final year businesses will receive payments under this program.
The CRA has emphasized that this final round of rebates will ensure all pollution pricing proceeds are returned to the provinces and businesses that incurred the costs.
CRA’s Ongoing Support for Businesses
The CRA will continue to provide updates through its website. It encourages businesses to stay informed by checking for:
- Payment timelines
- Tax filing procedures
- Amended return options
- Province-specific payment rates
For the latest guidance, businesses should visit the Canada Carbon Rebate for Small Businesses webpage.
The Canada Carbon Rebate for Small Businesses is a crucial support program for Canadian businesses, offering financial relief from fuel charge expenses.
With the new tax-free status for rebate payments, businesses will receive the full value of their rebates, enabling them to better manage operational costs, staff wages, and sustainability investments.
As this program draws to a close in 2025, businesses should ensure they meet all filing deadlines to maximize their benefits.
FAQs
When is the final payment for the Canada Carbon Rebate due?
The final payment for the 2024–25 fuel charge year will be issued once businesses file their T2 return by July 15, 2025.
Can I still claim rebates for 2019–2024 if I missed the filing deadlines?
Yes, businesses can still claim retroactive rebates if they file their 2023 tax return between July 15 and December 31, 2024, and the legislation is enacted.
What are the eligibility criteria for the Canada Carbon Rebate?
To qualify, your business must be a Canadian-controlled private corporation (CCPC), operate in a designated province, and employ at least one individual in a designated province during the applicable fuel charge year.