The climate action incentive is a payment received by taxpayers to help offset increased costs related to carbon pollution pricing, which is exactly as it sounds – a charge for putting pollutants into the environment.
Some provinces have designed pricing policies specific to their local needs. Other provinces, including Ontario, decided not to develop their own policies. Instead, they fall under the federal system.
In Ontario, this includes both the federal fuel charge and the output-based pricing system (OBPS).
What is the federal fuel charge and OBPS?
The fuel charge is a per liter price on fuel for gasoline, diesel, natural gas and other hydrocarbon fuel. It’s paid by anybody who purchases fuel. The OBPS is a charge applied to large industrial emitters. Putting a price on carbon pollution is seen as one of the most effective ways to reduce carbon emissions and drive innovation.
Proceeds from these programs stay in the province where they are collected. In some jurisdictions, the provinces and territories decide how to use the funds. In others, like Ontario, the proceeds are distributed to citizens and businesses through programs and payments.
From 2018 until 2020, this incentive was delivered in the form of a refundable tax credit. Come tax season, you would fill out your return. The amount you owe in taxes would be calculated based on the income you brought in less deductions. You would then reduce the total owing by amounts paid and taxable credits, including the climate action incentive.
If your tax owing was $0 before applying the climate action incentive, you would receive a refund (if you have other unused refundable tax credits and tax overpayments they would also be part of this refund). To claim the incentive, you would fill out Schedule 14.
But in 2021, things have changed.
So, what has changed?
Firstly, most taxpayers will no longer have to fill out a Schedule 14. Instead, the CRA will determine eligibility and calculate your total incentive using information contained in your return. If, however, you live in a rural area, you will have to continue filling out Schedule 14 to receive an additional payment amount.
This is not the only thing changing. You’ll also be receiving your payment differently in 2021. The incentive will no longer be a refundable tax credit that is delivered as part of the tax filing process. That means it will no longer increase your refund or decrease your tax owing. Instead, you will receive a tax-free quarterly benefit payment in April, July, October and December. (In 2022, your April payment will be included in your July payment.)
Because your eligibility and payment amount are determined using your tax return, you must file a tax and benefit return each year.
For 2022, the climate action incentive is $360 plus $180 for a spouse and $89 for each child. If you have a spouse or common-law partner, only one of you will be able to claim the amount. However, both of you will have to file your return to be eligible.
In addition to the above amounts, if you live in a rural area, you will get an additional 10%. But, as mentioned above, you’ll have to file a Schedule 14 with your return. Any questions? Contact Koroll & Company today.
