In provinces where the fuel charge applied, a portion of fuel charge proceeds from the price on pollution is returned to eligible small- and medium-sized businesses via the Canada Carbon Rebate for Small Businesses, an automatic, refundable tax credit provided directly to eligible businesses. Corporations do not have to apply for the tax credit; the payment amounts are automatically determined by the Canada Revenue Agency (CRA).
On June 30, 2025, the Minister of Finance and National Revenue, the Honourable François-Philippe Champagne, issued draft legislation to ensure that all Canada Carbon Rebates for Small Businesses are provided tax-free-securing small businesses the full financial benefit of the rebates.
Specifically, payments received by corporations in respect of 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., in respect of 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 of 2025.
The CRA has updated its public information in light of the publication of the draft legislation, including how taxpayers in different situations may be affected by the proposed changes.
Tax treatment of the rebate
- If you haven't yet filed: You can choose not to include the rebate in your taxable income when filing your T2 Corporation Income Tax Return for the year in which you received it. However, if the legislation does not receive Royal Assent, your return could be reassessed with interest.
- If you have already filed: If the legislation receives Royal Assent, the CRA will be able to process amended T2 returns for the 2024 taxation year for those who already included the rebate in their taxable income. The CRA will provide further guidance at that time. To the extent possible, the CRA will undertake proactive reassessments to minimize the burden on businesses. However, taxpayer contact, initiated by the CRA, may be required in some cases to confirm reassessment details.
Filing deadline for past years
The government confirmed that eligible businesses that filed their 2023 tax return after July 15, 2024, and on or before December 31, 2024, will also be eligible for the payment covering fuel charge years 2019-20 to 2023-24, should the legislation receive Royal Assent. No action would be required-these payments will be issued automatically at a later date.
Filing deadline for the final payment
Eligible businesses need to file their 2024 tax return by July 15, 2025, in order to receive a payment for the 2024-25 fuel charge year.
Once the Minister of Finance and National Revenue has specified the payment rates for each designated province for the 2024-25 fuel charge year, the CRA will determine and automatically issue the rebate amounts to those who are eligible. The payment amounts would be determined on the same basis as the payments made in respect of the 2019-20 to 2023-24 fuel charge years.
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. This final payment will help ensure that all proceeds from the fuel charge are returned to the province or territory in which they were collected.
