The draft legislation ensures that all Canada Carbon Rebates for Small Businesses are provided tax-free. 

Canada’s Department of Finance announced on 30 June 2025 that Carbon Rebates for small businesses will be tax-exempt, enabling eligible businesses to fully benefit from these payments.

Specifically, payments received by corporations for the 2019-20 to 2023-24 fuel charge years would not be included in income for tax purposes, and the final payment to be made under the Canada Carbon Rebate for Small Businesses (i.e., for the 2024-25 fuel charge year) will also be tax-free.

The government will introduce legislation in Parliament to implement these changes in the fall.

Once the legislation receives Royal Assent, the Canada Revenue Agency (CRA) will have the authority to process amended T2 corporation income tax returns for those who have already included the rebate in their taxable income, ensuring the rebate is processed as tax-free (i.e., not included in the taxable income reported in the T2).

The Government also confirms that eligible businesses that filed their 2023 tax return after 15 July 2024 and on or before 31 December 2024 will also be eligible to receive tax-free payments in respect of the 2019-20 to 2023-24 fuel charge years, once the legislation receives Royal Assent. Eligible businesses that file their 2024 income tax return by 15 July 2025 will be eligible to receive a tax-free payment in respect of the 2024-25 fuel charge year.

Finally, with the removal of the fuel charge from law and the winding down of proceeds return mechanisms, the government will no longer proceed with proposed changes announced in the 2024 Fall Economic Statement which would have expanded eligibility for the Canada Carbon Rebate for Small Businesses to cooperative corporations and credit unions, added a minimum payment for smaller businesses, and introduced a phaseout for larger businesses.

Quick facts

  • The federal government removed the consumer fuel charge via regulations, effective 1 April 2025, and introduced legislation that would formally remove the federal fuel charge from Canadian law. A price on pollution for large emitters will continue to be a pillar of Canada’s plan to build a strong economy and greener future.
  • In provinces where the fuel charge applies, a portion of the fuel charge proceeds from the pollution price is returned to eligible small and medium-sized businesses via the Canada Carbon Rebate for Small Businesses.
  • The Canada Carbon Rebate for Small Businesses is an automatic, refundable tax credit provided directly to eligible businesses, which is delivering over CAD 2.5 billion in tax-free payments to over 600,000 Canadian businesses by returning fuel charge proceeds from the now-cancelled federal consumer fuel charge for the 2019-20 to 2023-24 fuel charge years.
  • The Minister of Finance and National Revenue will specify payment rates to return to Canadian businesses the CAD 623.1 million in proceeds for the final 2024-25 fuel charge year once sufficient information is available from the 2024 taxation year.
  • With the removal of the federal fuel charge effective April 1, 2025, the Canada Carbon Rebate for Small Businesses payment in respect of the 2024-25 fuel charge year will be the final payment to eligible businesses.