Carbon Tax Rebates and Debt: What You Need to Know

The carbon tax rebate helps keep more money in the pockets of Canadians. But what happens when you are in debt? Does the government withhold your credits and benefits? Can you save your rebate if you file for Bankruptcy or a Consumer Proposal? Debt can make tax credits and become complex.

With that in mind, here is what you need to know about protecting your carbon tax credits while managing debt.

What is the Canada Carbon Rebate?

The Canada Carbon Rebate (CCR) is a tax-free payment from the federal government meant to help eligible Canadians offset the cost of carbon taxes. Before April 15, 2024, the CCR was known as the Climate Action Incentive Payment (CAIP).

The CCR is composed of two parts:

• Basic: CCR for residents and newcomers to Canada
• Rural supplement: CCR for residents of small and rural communities

The amount you receive is based on your province of residence. Unlike other government benefits (e.g. Canada Child Benefit), CCR payments are not reduced based on income.

The CCR is paid quarterly in April, July, October, and January.

Do You Collect the CCR if You Have Tax Debt?

Short answer: no. The CCR provides a nice quarterly boost to your bank account, but you might not see the money if you carry tax debt. The Government of Canada can put your CCR payment towards tax debt or other amounts you owe the provincial or federal government.

Do You Collect the CCR in When Filing For Bankruptcy?

What happens to your carbon rebate if you file for Bankruptcy? Well since Bankruptcy is a legal process that can discharge you from many unsecured debts (e.g. credit cards or personal loans), tax debts are treated the same and are eliminated.

The Office of the Superintendent of Bankruptcy (OSB) states that CCR payments are the “property of the bankrupt” when calculated in the year you file for Bankruptcy or the years before. This means that the government can seize your CCR till you file for Bankruptcy. Any tax returns, including CCR from previous years, can go towards offsetting your tax debt.

In the years after you file for Bankruptcy, CCR payments are included as income when calculating surplus income payments. You have to make surplus income payments if your earnings exceed the income the OSB deems necessary to maintain a reasonable standard of living (the OSB sets that amount each year).

Once you’re discharged from Bankruptcy, you will receive your entire carbon tax rebate again.

Do You Collect the CCR When Filing a Consumer Proposal?

A Consumer Proposal is another government program that can provide relief from some of your unsecured debts. In a Proposal, you work with a Licensed Insolvency Trustee (LIT) to create an offer to pay your creditors a percentage of your debt, extend the time to repay your debts, or both.

A Consumer Proposal typically covers tax debts. The government can seize your carbon tax payment until you file your Proposal, but you will receive your carbon tax rebate again afterward (along with other benefits of your tax refund). That is a clear benefit of filing for a Consumer Proposal over Bankruptcy—you get to keep your entire CCR once you file.

Need Help With Your Debt?

The Canadian Carbon Rebate should offset the financial burden of the carbon taxes. But, the rebate can be withheld payments if you have tax debt. It all depends on the different variables of your situation (e.g. the type of debt you owe, your tax file, etc).

If you have tax debt and worry about what will happen to your carbon tax refund or other government benefits, talk to a LIT. Trustees are debt experts who can assess your financial situation and help you determine which debt solution is right for you. If you need formal debt help, LITs can help you manage your debt while protecting as many assets (and rebates!) as possible.

For a free, no-obligation consultation, call Adamson & Associates at 519-310-JOHN (5646) or contact us online.