Carbon Tax in Canada

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Canadian provinces continue to adapt to the federal government's new carbon taxes to reduce national carbon pollution. Some believe carbon taxes are the ideal way to reduce pollution, while others claim the taxes may damage economies without having a meaningful impact on the climate. Understanding this new tax is essential for taxpayers as it can significantly increase the net tax you pay annually. Big emitters and industries also stand to pay up to $50 per ton of emissions by 2022. In this review, we examine everything you should know about the carbon tax in Canada, including how it works and who is affected.

Is There A Carbon Tax in Canada?

Yes. The federal government's carbon tax was a hot topic in 2018, and in the 2019 elections, two-thirds of voters supported the party in favor of carbon tax. The pledge to put a price on pollution came back in 2015 and in the summer of 2018, the government passed the Greenhouse Gas Pollution Act (carbon tax). The act required establishing a carbon pricing system and started at $20 per ton in 2019. This price is set to increase by $10 each year, culminating to $50 by 2022. The carbon tax aligns with Canada's promise to honor their obligations to the Paris Agreement, which requires the government to cut down pollution by 30% below the levels recorded in 2005 by 2030. Although some provinces have taken to the Supreme Court seeking more elaboration of its merits, Canadian taxpayers should expect to start paying their carbon tax as required by the law.

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How Does It Work?

Carbon tax in Canada has two main parts. The first is a carbon levy imposed on fuel purchases, while the second is a big emitter's program designed for industrial facilities. According to the Government of Canada, the carbon tax will be adopted by all provinces that have none in place. The tax is considered revenue neutral because proceeds will go back to the residents of the provinces in the form of Climate Action Incentive (CAI) rebates. Residents of some provinces, including Saskatchewan, Ontario, Alberta and Manitoba, are eligible for CAI rebates, which you can claim on line 45110 of your annual tax return.

The federal government created CAI to ensure taxpayers are receiving end of proceeds from the carbon tax, as they are likely hit most by soaring power bills and fuel prices. CAI rebates go to taxpayers as refunds and can be as low as $430 in 2020 to as high as $1400 by 2022. However, the payments you receive will depend on various factors, including the province you live in and household size. Part of the carbon tax revenue will also go to schools, universities, nonprofits, indigenous communities, municipalities SMBs. Payments will automatically offset the balanced (tax) owed to the CRA or added to your eligible refunds.

Although the carbon tax seems to target big industries and polluters, taxpayers warming their homes with natural gas and driving standard fuel-burning cars should expect to pay extra. Essentially, the more pollution you cause, the more carbon tax you pay. The carbon tax levy section imposes an extra 6.6 cents per liter of gas until April 2021, so you will be paying a tad more when filling your tank. This is expected to increase each year until it reaches 11 cents in 2022. Heating your home with gas will also cost extra and pundits project up to $340 per year for families in Ontario. Nonetheless, with CAI rebates starting at $439, you'll probably end the year with more funds. Here's a brief look at carbon tax by province:

British Columbia, Quebec, Nova Scotia

BC established its tax back in 2008 and is among the provinces aggressively fighting pollution. Taxpayers pay $40 per ton of fossil fuels, diesel and gas, which translates to 9 cents per liter. Quebec also initiated its carbon tax in 2018. Drivers and regular taxpayers pay 3 extra cents per liter when filling their tanks. Industries have a capped emission volume above which they must buy carbon credit from a market Quebec shares with California. Nova Scotia also has a similar emission cap system used in Quebec.

Alberta, Saskatchewan, Manitoba, Ontario and New Brunswick

All these provinces aren't fans of the carbon tax and repelled it. Ottawa forced the federal tax on Saskatchewan and Alberta residents have to comply with the federal tax requirement of $20 per ton or 6.6 cents per liter. Ottawa also reluctantly accepted Manitoba's Climate and Green Plan. New Brunswick had its provincial carbon tax approved by the federal government in April 2020. It follows the mandatory price per ton set by Ottawa.

Prince Edward Island and Newfoundland & Labrador

P.E.I backed out of a Supreme Court challenge to administer its own $20 per ton carbon levy as required by the federal government. However, P.E.I also reduced provincial gas taxes, so small polluters won't notice a significant change in gas prices. Newfoundland & Labrador followed the same P.E.I approach, maintaining the standard $20 per ton carbon price while reducing the gas tax to offset gas prices at the pumps.

Northwest Territories, Nunavut and Yukon

These territories all bought into the federal carbon tax, charging $20 per ton of emission. However, they offer generous rebates to offset the tax. In Northwest Territories, taxpayers get 100% rebates on home heating and $156 per adult, and $180 per child on the cost of living.In Yukon and Nunavut, the refund is $172 per family.

The carbon tax in Canada is still relatively new and even being contested in court. As such, it is essential to keep tabs on emerging changes.

Who is Affected?

Both families and industries are affected by the carbon tax. For regular taxpayers, the added tax implies paying more at the gas station and annual power bills. However, most provinces have a way to offset the soaring prices through rebates, tax credits and lower gas taxes. Unfortunately, the case isn't similar for big emitters. Industries will pay depending on the amount of emission produced and the federal requirement is at least $20 per ton. The increased tax will obviously shake industrial profitability and economies that rely on fuel-powered industries. This explains the Supreme Court cases that are out of favor with the federal carbon tax.

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Last Updated January 11, 2021

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