You may have questions about CAIP. For example: When are these climate action incentive payments coming? Why do they exist? Are they free money? Will you have to pay tax on them? Here’s how CAIP works.
Why is there a carbon tax rebate?
Carbon tax rebates are paid out from money collected as part of Canada’s carbon pricing system. In 2019, the federal government put a price on carbon pollution, with the aim of reducing greenhouse gas (GHG) emissions. At the time, the national minimum price was $20 per tonne of carbon dioxide equivalent (CO2e). It went up to $50 in 2022 and $65 in 2023. The minimum price will continue rising $15 every April until it reaches $170 per tonne in 2030.
Carbon prices are collected through fuel charges and an output-based pricing system for industry. Drivers may have noticed the fuel charge at the pumps. As of April 1, 2023, drivers in Alberta, Saskatchewan, Manitoba, Ontario, Yukon and Nunavut pay a fuel charge of $0.1431 per litre of gas. As of July 1, 2023, this charge also applies to drivers in New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. Rates for other fuel types vary. (MoneySense hack: You can’t avoid fuel charges and other fuel consumption levies, but you might be able to find cheaper gas or get cash back.)
Provincial and territorial governments can use the federal carbon pollution pricing system or develop their own carbon pricing model or cap-and-trade system, as long as it meets or exceeds federal standards.
Across Canada, climate action incentive payments and tax credits are meant to offset the cost of fuel charges for individuals and families while also encouraging them to reduce their GHG emissions. Before 2021, the climate action incentive was a refundable tax credit claimed on personal income tax returns. Quarterly payments to residents of Alberta, Saskatchewan, Manitoba and Ontario began in July 2022.
Ottawa returns 90% of the carbon pricing money it collects back to the jurisdictions where it came from, either to the provincial and territorial governments or, in the case of CAIP, directly to residents. The other 10% is used to support schools, small and medium-sized businesses, hospitals and Indigenous programs.
The federal Department of Finance says that eight out of 10 families will receive more in CAIP than they pay in direct costs.
Who can receive climate action incentive payments?
To be eligible for CAIP, you must be a resident of Canada for income tax purposes at the beginning of the month in which the Canada Revenue Agency (CRA) makes the payments. You also have to be a resident of “an applicable CAIP province” on the first day of the payment month, as well as be at least 19 years old in the month before the payments go out.