What are climate action incentive payments?

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.

If you’re under 19, you must meet one of these conditions during the same period, says the CRA:

• Have (or previously had) a spouse or common-law partner
• Are (or previously were) a parent and live (or previously lived) with your child

If you have a spouse or common-law partner, just one of you will get the credit—whoever’s tax return was filed first. According to the CRA, “No matter which one of you receives the credit, the amount will be the same.”

If you have a child under age 19 who lives with you and is registered for the Canada Child Benefit, a credit (for each eligible child) will be included in your CAIP calculation. If you share custody of a child with a former spouse, you will each get 50% of the amount you’d have received if the child lived with you full-time.If you live in a small or rural community, you’ll receive a 10% supplement—check your eligibility.

How do you apply for CAIP?

Most residents don’t need to apply—the government bases eligibility on last year’s income tax returns. (Another good reason to file your tax return on time.) If you get your tax refunds via direct deposit, that’s how you’ll receive your CAIP, too.

If you’re a newcomer to Canada, you will need to apply for CAIP. If you have kids, fill out Form RC66 and Form RC66SCH to apply for all family and child benefits. If you don’t have kids, fill out Form RC151 to apply for both CAIP and GST/HST benefits.

To keep receiving CAIP, you must file a personal income tax return each year.

When are carbon tax rebates paid out?

CAIP is paid on the 15th of April, July, October and January. If the 15th happens to fall on a weekend or statutory holiday, payments will go out on the last business day before the 15th.

For CAIP-entitled residents of Nova Scotia, Prince Edward Island, and Newfoundland and Labrador, the first payments are scheduled for July 2023. Residents of New Brunswick will receive a double payment in October 2023, covering the periods of July to September 2023 and October to December 2023.

How will you receive your climate action incentive payments? 

If you receive tax refunds by direct deposit, that’s how you’ll get your CAIP as well. (Not registered for direct deposit? You can set that up.) If you get tax refunds by mail, your CAIP cheques may take up to 10 business days to arrive.

What if you’re eligible for CAIP but didn’t get it?

If the payment date rolls around and you don’t receive anything, the CRA says to wait 10 business days before inquiring. And if you happen to owe taxes or other amounts to the government, the CAIP amount will be applied to your debt first.

How much do you get from CAIP?

The size of climate action incentive payments varies by province, where you live in the province and your family’s composition, and the amounts can change from year to year. Your household income is not a factor, says the CRA: “The payment for the CAIP will be universal and therefore not subject to a benefit reduction based on adjusted family net income.”

Each province has a basic credit amount, with additional amounts for a spouse/common-law partner, eligible children, and living in a small or rural community. Below are the quarterly payments for 2023–24. Three of the newly added provinces—Nova Scotia, Prince Edward Island, and Newfoundland and Labrador—will receive their first payments in July 2023. (The amounts for P.E.I. include the 10% rural supplement, since all residents are eligible.) New Brunswick residents will not receive CAIP in July 2023 but will get a double payment in October 2023 (and then a single payment in January 2024).

Are CAIP payments taxable?

Nope! Climate action incentive payments are tax-free. To learn more about CAIP, visit the Government of Canada website.

Read more about climate and money:

• How climate change is affecting your home insurance
• Watch: Climate change in Canada and the rising cost of home insurance
• Why sustainable investing is important
• Earth Day 2022: It’s time to invest in our planet
• How to invest more sustainably in crypto

About Jaclyn Law

Jaclyn Law is MoneySense’s managing editor. She has worked in Canadian media for over 20 years, including editor roles at Chatelaine and Abilities and freelancing for The Globe and Mail, Report on Business, Profit, Reader’s Digest and more. She completed the Canadian Securities Course in 2022.

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