Confirmed:  The CCR for Small Business is Tax Free

Ruth Horst & Evelyn Jacks

Ottawa has confirmed that the CCR for Small Business received by eligible Canadian-controlled private corporations (CCPCs) will be tax free for the 2019-20 to 2023-24 fuel charge years, as will the final payment for the 2024-2025 fuel charge year.  Draft legislation was released on June 30, 2025 with this announcement; and will be introduced for law making in Parliament this Fall.   Some of the more significant details are discussed below.

First, when Royal Assent is received, CRA will have the authority to amend T2 Corporate returns for those companies which included the rebate in taxable income.  Further guidance will be provided by the CRA at that time, according to the news release issued on June 30.

CCR is not taxable.   Under existing rules, the CCR for small business was considered to be government assistance, which is taxable.

Subsection 127.421(6) of the Income Tax Act is now amended, under draft legislation, to provide that these amounts are not to be included in computing the income of a corporation for a taxation year. Again, this amendment is deemed to have come into force on June 20, 2024.

Therefore, businesses can choose not to include the rebate in taxable income when filing their T2 returns for the year in which it was received.

A Warning, However.  CRA warns on their June 30 update, that businesses must be aware that they could be reassessed, with interest, if the legislation does not receive Royal Assent.

Filing Deadlines.  Corporations which missed the initial corporate tax filing deadline of July 15, 2024, will have that deadline extended to December 31, 2024, for the Canada Carbon Rebate for Small Businesses for the 2019 to 2023 calendar years. This amendment is deemed to have come into force on June 20, 2024.

It is subsection 127.421(3) that provides a method for calculating the amount of the Canada Carbon Rebate for Small Businesses for calendar years that are after 2023.  If the return is filed on or before July 15 of the following calendar year, the corporation is deemed to have paid tax on its balance-due day for the year, under Part I for that taxation year.

The draft legislation amends subsection 127.421(3) to provide a fixed date of October 1 of the calendar year as the date on which a corporation is deemed to have paid tax payable under Part I for the particular taxation year. This amendment is deemed to have come into force on June 20, 2024.

Eligible businesses that filed their 2023 tax return after July 15, 2024, and on or before December 31, 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 July 15, 2025, can receive a tax-free payment in respect of the 2024-25 fuel charge year.

Cancellation of Enhancements from Fall Economic Statement.  The 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.  However those changes have now been scrapped.

So has any future CCR for small businesses.   That’s because on March 15, 2025, regulations were introduced by Finance Canada to eliminate it together with the consumer version of the carbon fuel tax, effective April 1.

A portion of fuel charge proceeds from 2019-2020 through 2023-2024 were paid to the majority of eligible CCPC and now, proceeds for the 2024-2025 fuel charge year will be returned in a similar manner, as noted above.

Additional Educational Resources:  Join us on September 17 for further updates on tax changes announced since the election of the new federal government and a special focus on Audit Defence at the CE Summit.

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