How the carbon tax hike will impact small businesses

By Lucy Mazzucco

On April 1, the federal carbon tax increased by $15 from $65 to $80 per tonne; a jump that will impact small businesses in Canada.

iStock by Visual Generation

The federal carbon tax, which is applied to fossil fuel purchases in Ontario, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, PEI, Newfoundland and Labrador, Yukon, and Nunavut, aims to reduce Canadians’ consumption of polluting fuels. British Columbia, Quebec and the Northwest Territories are not part of the federal tax or rebates as they have their own carbon-pricing systems.

Along with small and medium-sized businesses (SMEs), the federal tax also affects individuals, First Nations and public sector institutions in the aforementioned provinces and territories.

The carbon tax first came into effect in 2019 at $20 per tonne, increasing at $10 per tonne to $50 in 2022.

According to the federal government, this approach to pricing carbon pollution aims to give provinces and territories the “flexibility to implement the type of system that makes sense for their circumstances as long as they align with minimum national stringency standards, or ‘benchmark’ criteria.”

In hopes of accelerating the market adoption of the technologies and practices required to reduce emissions and build a low-carbon economy, Canada proposed to increase the price on carbon pollution on an annual basis at a rate of $15 per tonne from 2023 to 2030. As a result, the minimum price on carbon pollution will increase by $15 per tonne per year until 2030. 

In response to the recent tax hike, the Canadian Federation of Independent Business (CFIB) expressed their concerns over the increase as well as the government’s decision to cut the small business return in half. “The government has returned only 0.17 per cent of the carbon tax to small businesses,” reads the CFIB’s website. 

"The giant hike in carbon taxes further highlights how unfair this tax is for small businesses," said Dan Kelly CFIB president in a press release. While over half (56 per cent) of small firms will be forced to raise prices to accommodate the tax, 45 per cent report they will need to freeze or reduce wages (45 per cent) and a full third (33 per cent) say it will reduce their ability to invest in environmental initiatives. "The first thing Ottawa must do is freeze the upcoming tax hike. The whole carbon tax system has become a shell game, and sadly, small firms are unfairly punished by it."

"Making the problem worse is the fact that Ottawa has not delivered on promises to return a portion of carbon tax revenues to small businesses," Kelly said. "Ottawa is sitting on $2.5 billion in carbon tax rebates intended for small firms, calling into question the government's claim that the tax is revenue neutral."

CFIB noted that Deputy Prime Minister Chrystia Freeland recently said that small businesses would soon have some “good news” regarding the billions of dollars owed to them since 2019. CFIB estimates that small firms in Ontario, Manitoba, Saskatchewan, and Alberta could receive a one-time rebate between $2,600 and almost $7,000. In terms of the four Atlantic provinces, rebates would be between $630 and $1,060, according to the same release.

CFIB continues to advocate for small businesses and is urging the government to drop the carbon tax hike, return the $2.5 billion owed to all small businesses, scrap the plan to reduce the SME share of carbon tax revenue from 9 per cent to 5 per cent in 2024 and rebate it annually and ensure SMEs get rebates equivalent to their share of the fuel charge.

CFIB is also urging the government to pass Bill C-234 as originally proposed to exempt natural gas and propane used for on-farm activities, including grain drying and heating farm buildings, freeze the carbon tax at its current level and exempt all heating fuels, including natural gas.

"Ottawa has an opportunity to right the wrong and announce concrete plans to return the promised $2.5 billion to all small businesses, not just certain sectors," said Jasmin Guenette, CFIB's vice-president of national affairs in the same release. "We hope the government listens to small business concerns and will announce details of a plan to keep its promise in the upcoming budget."

Small businesses can support CFIB's fight for carbon tax fairness by signing a petition here.