Ottawa quietly scales back carbon tax rebates for businesses

Last October, Prime Minister Justin Trudeau announced a three-year carbon tax exemption for heating oil in the Maritimes. To finance this relief, Ottawa reduced carbon tax rebates for small businesses from 7% to 5% of total revenues. As of the current date, the federal government owes entrepreneurs more than $2.5 billion.

Ottawa quietly scales back carbon tax rebates for businesses
The Canadian Press / Adrian Wyld and The Canadian Press / Patrick Doyle
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The Trudeau Liberals have announced that Canada’s small businesses will receive fewer carbon rebates, aiming to keep costs down for rural Canadians. Critics are calling this move "deeply unfair."

According to Dan Kelly, the president of the Canadian Federation of Independent Business (CFIB), small businesses have paid more carbon tax than they received back since the program went live five years ago.

As of writing, the feds owe entrepreneurs more than $2.5 billion in carbon tax revenues. Additional funds are expected for the Maritime provinces.

On a provincial basis, payouts amount to $1.3 billion in Ontario, $718 million in Alberta, $301 million in Saskatchewan, and $144 million in Manitoba. Rebates in Atlantic Canada have not been calculated as of writing.

Last October, Prime Minister Justin Trudeau announced a three-year carbon tax exemption for heating oil in the Maritimes.

To fund the exemption, the Prime Minister said the extra funds for rural rebates had to come from somewhere. "In every policy we have to make choices," he said at the time.

Initially, businesses without major carbon footprints were expected to receive 7% of revenues through grant programs designed to retrofit their businesses with more energy-efficient equipment.

However, Tuesday’s announcement worsens that shortfall, said Kelly. Small businesses are slated to receive no more than 5% of carbon tax revenues. "It is deeply unfair," he added.

The taxpayer advocacy group estimates 40% of carbon tax revenues come from small businesses — down from a prior estimate of 50%.

Yet, they only received a miniscule 0.17% of all carbon tax revenues between 2019 and 2023,” said the report Fueling Unfairness: Carbon Pricing And Small Business.

"I expect the outrage level among small businesses toward this tax to rise once business owners find out about the bad tax being even a bigger ripoff," said Kelly.

"Increases in the carbon tax, coupled with minimal compensation, made the cost of doing business substantially higher, negatively impacting thousands of businesses," reads Fueling Unfairness.

According to the Federation, three in five businesses incurred 10% higher energy costs last year despite using the same amount of power in previous years.

While the CFIB said most businesses (52%) dislike the carbon tax, most support offsetting their emissions and costs through retrofit grants. 

However, if the carbon tax increases to $170 per tonne in 2030, over half (56%) of small businesses said they would have to increase their prices to offset costs, according to Fueling Unfairness.

Over four in ten (45%) said it would increase pressure on them to freeze or cut salaries and wages, while 40% said they would have to reduce investment in their business. 

The ECCC has yet to clarify the small business portion of the total carbon tax bill.

But a federal backgrounder last week articulates businesses will get back $623 million in the 2024/25 fiscal year.

The feds allocated roughly $935 million for small business this fiscal year — half the total revenues of $15 less per tonne.

Initially, 89% of revenues would go to households in the form of a rebate, with a few percent going to Indigenous communities, municipalities, hospitals and schools.

Upon introducing the federal carbon tax in 2018, they pledged a "revenue-neutral" tax, with $11.4 billion going back to households through rebates. 

But of the $100 million returned through retrofit programs, $35 million went to small business, $60 million to schools and about $6 million to Indigenous communities.

Kelly contends the announcement undermines the purpose of the carbon tax.

"The whole principle … is you tax carbon-based activities and you give the money back so that then people make decisions to use those dollars in lower-carbon activities," said the CFIB president. "The whole concept doesn't work if you don't give the money back," he added.

To make matters worse, Environment and Climate Change Canada (ECCC) has yet to clarify when and how that money will be distributed, reported The Canadian Press.

The finance department has been “developing the specifics” for payouts since 2019. “There is no mechanism in place to return a dime to small businesses paying the federal carbon tax,” Kelly earlier told Blacklock’s Reporter.

The ECCC pledged reimbursement last fall, with compensation details expected in July. They provided no additional details earlier this month on reimbursing the $2.5 billion already owed.

"The government of Canada is working hard to launch these fuel charge return programs," the department told The Canadian Press.

In 2019, Environment Canada promised $155 million rebates for small businesses. That figure fell to $150 million, and its scope limited to subsidizing electric vehicles, high-efficiency appliances and building refits. 

The feds later cancelled the initial programs by year three, citing difficulty getting money out the door.

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