A Canadian Tax Lawyer’s Updates on the Climate Action Incentive

Introduction to the Climate Action Incentive

Residents of Alberta, Saskatchewan, Manitoba and Ontario have received and will continue to receive the Climate Action Incentive Payment (CAIP) this year in quarterly instalments. Residents in other provinces and territories will not receive the payment directly. Instead, proceeds generated by carbon taxes are paid to the provincial and municipal governments. The CAIP is designed to offset the carbon tax and has previously been issued as a component of Canadian tax returns. An individual or a family living in small and rural communities will receive an extra 10 percent on top of the regular payments.

The Climate Action Incentive Payment and The Carbon Tax

The Climate Action Incentive Payment (CAIP) is a result of the Greenhouse Gas Pollution Pricing Act that created the carbon tax. In 2019 when the carbon tax was first implemented, the tax started at $20 per ton. The federal government, later in December 2020, announced a gradual hike in the federal carbon tax on fuels to $170 per ton by 2030.

Some provinces, notably Alberta, Saskatchewan and Ontario, challenged the carbon tax, arguing natural resources are in the provinces’ jurisdiction under the Canadian Constitution. The Supreme Court of Canada, in a 6 to 3 decision, ruled in favour of the federal government and found the Greenhouse Gas Pollution Pricing Act constitutional under the “peace, order and good government” clause. The dissent strongly disagreed with the majority’s decision, with Justice Russell Brown stating that “this is a model of federalism that rejects our Constitution and rewrites the rules of Confederation.” Regardless, the Greenhouse Gas Pollution Pricing Act remains effective today, which results in the recent development of the Climate Action Incentive Payment (CAIP).

The CAIP supposedly offsets the cost of federal pollution pricing particularly for residents who reside in Alberta, Ontario, Manitoba and Saskatchewan. For other provinces and territories, the funds will be paid to the provincial governments but not directly to the individuals. The federal government claimed that the carbon tax is “revenue neutral” as all direct proceeds of the program go directly back to residents in the provinces where the federal system was forcefully adopted. For other provinces that have willingly adopted the carbon tax, the federal government has announced that the proceeds will be invested over the next decade in various areas, including but not limited to electric vehicle charging infrastructure, zero-emission vehicles, and home retrofits.

Eligibility for the Climate Action Incentive Payment

The CAIP is a form of federal payment to help the individuals who are residing in Alberta, Ontario, Manitoba and Saskatchewan to offset the cost of federal pollution pricing. To be eligible for the Climate Action Incentive Payment, an individual must be a resident of Alberta, Saskatchewan, Manitoba or Ontario on the first day of the payment month and the last day of the previous month. The individual must also meet at least one of the three following conditions during the same period:

1. The individual must be 19 years of age or older
2. The individual has or had a spouse or common-law partner, or
3. The individual is or was a parent and lives with his or her eligible child or children. An eligible child must be under 19 years of age, lives with the parent claiming the CAIP. The child must also be primarily taken care of by the parent claiming the CAIP and registered for the Canada child benefit. A credit for each eligible child will be included in the calculation of CAIP.

Calculating The Climate Action Incentive Payment

The total amount an individual or a family receives depends on their tax residency and number of people in the household. First, different provinces have different calculations of base payments for each year.

Second, the payment divides recipients of CAIP into different categories, including a single individual, a couple who are spouses or common-law partners with no children, a family of two parents with eligible children, and a single-parent family with eligible children.

Third, the CAIP includes a rural supplement of additional 10% of the base payments for residents of small and rural communities. The following information for base payment was obtained from the Canadian Revenue Agency website at the time of writing this article and will not be updated.

Pro Tax Tips – Keep Track of The Climate Action Incentive Payment

The Climate Action Incentive Payment (CAIP) was previously issued as part of the tax return. Starting 2021, the payment is now directly refunded to residents in Ontario, Alberta, Saskatchewan and Manitoba. The first payment started on July 15, which would cover quarterly payments for first half the year. The next quarterly payments will be issued in October 2022 and January 2023. The Canadian Revenue Agency (CRA) has stated that individuals should only contact them if they have not received the payment 10 business days after July 15, 2022 or quarterly instalment official release dates.

For more information on carbon tax, the Climate Action Incentive payment and Canadian tax planning advice, contact our expert Canadian tax lawyers.

FAQ

How Much Will I Receive from the Climate Action Incentive Payment?

The total amount a family receives depends on their location and number of people in the household. For example, a single adult in Ontario will receive $373 in total for 2022. A family of four (including two children) in Saskatchewan, in comparison, will receive $1,101 in total for 2022. An adult couple with no minor children who are residents of small and rural communities in Alberta will receive $889.90, which includes the 10% supplement.

Why Haven’t I Received the Climate Action Incentive Payment?

If you reside in one of the four provinces that issue payment directly to the residents but have not received the Climate Action Incentive payment, there can be various reasons. First, the payment will not be issued until your 2021 Income Tax and Benefit return has been processed. Second, if you have a tax debt with the CRA, the CAIP will be applied to amounts owing for income tax balances. Last but not least, it can simply be a mistake on the Canadian Revenue Agency (CRA). Contact the CRA if you have not received your CAIP more than 10 business days from the expected payment dates.

Disclaimer

“This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions, you should consult a lawyer.”

About the Author

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David J. Rotfleisch

David J. Rotfleisch, a leading Canadian tax lawyer, is not only a certified specialist in taxation but also a chartered professional accountant. Most recently, David is a pioneer in Canadian crypto taxation.

As of April 2020, he was one of 12 Ontario Certified Specialists In Taxation™.

Learn more about David J. Rotfleisch