What is Climate Action Incentive in Canada?

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Pollution is a big issue that affects every Canadian and this is why Canada’s Government has a program aimed at compensating people living in areas affected by carbon pollution. In 2019, the Canadian government rolled out a price on carbon pollution known as Federal Carbon Tax (Fuel Charge).

This initiative is aimed at protecting Canadians from the ills and costs caused by climate change. It is also to ensure that Canada continues to reduce its greenhouse gas emissions.

Most Canadian provinces have a pollution pricing system. Recently, the prime minister announced the incentive payment to provinces in Canada that do not have a pollution pricing system. These provinces include Ontario, Manitoba, Saskatchewan, and Alberta.

This payment is processed when you file your income tax returns. It might lessen the amount you have to pay or increase your refund after filing your income tax return.

What is Climate Action Incentive in Canada (CAI)?

Climate Action Incentive (CAI), also known as line 45110, is a tax credit offered by the Canadian government to protect the environment while making sustainability more affordable. The climate action incentive (CAI) payment is made up of a basic amount and a 10% supplement for people who live in small and rural communities. This program is funded from the federal pollution system revenue.

The CAI is only available in provinces where there are no dedicated pollution pricing systems. This will help residents of these provinces to fund for projects to decrease energy usage, pollution and save cost.

Climate Action Incentive are refundable tax credits, and each payment amounts are adjusted in every province to account for any over-or under-distributions of payoff. This payment was reviewed within 2019 – 2020 and is backed by accessible information in every province.

This is in line with the terms governing the CIA, which shuns variation in payment. Hence, any variance between the revenue generated from a province and the amount of payment returned to the province is re-evaluated. This is done via modifications in any future payment to that province. The CAI’s goal is to pay back the cost of carbon charge while still paying you.

Who Qualifies for Climate Action Incentive?

Several factors make you eligible for this incentive; some of them include:

  • You must be an adult.
  • You must be at least 18 years or above.
  • A resident of Canada throughout 2020
  • Had a significant other or a common-law partner
  • Your partner has not claimed it.
  • You are a parent living with your child.
  • Your province is eligible.

Climate Action Incentive Eligible Provinces

Only residents of the following provinces are eligible for this incentive:

  • Saskatchewan
  • Manitoba
  • Ontario
  • Alberta

Adult children age 18+ should file their tax returns to claim the total climate action incentive and receive the GST/HST credit where applicable. Note that you cannot claim the Climate Action Incentive payment if at any point in 2020:

  • You were a non-resident of Canada.
  • You were detained in a jail or similar establishment for a minimum of ninety days throughout the year.
  • You were an agent or official of the government of another country – like a diplomat.
  • In-charge of receiving payment for a special  kid

Also, note that you cannot ask for CAI for someone who died before the first of April 2021. Depending on your circumstances, you’ll be eligible to use the Climate Action Incentive payment, likewise the 100% supplement for residents of rural areas and small communities, for certain members of the family, or certain members of your family.

Claiming CAI payment for an eligible relation or common-law partner

To claim the Climate Action Incentive payment for a relation or a common-law partner, you had to be married or in a relationship with that person on New Year’s Eve, 2020.

You cannot claim the Climate Action Incentive payment for your relation or common-law partner if, at some point in 2020, your relation or common-law partner:

  • You were a non-resident of Canada.
  • You were detained in a jail or similar establishment for a minimum of ninety days throughout the year.
  • You were an agent or official of the government like a diplomat, a loved one who resided with such a person, or an employee of such a person.
  • If you are someone to whom a special kid allowance is payable to

Also, note that you cannot ask for CAI for a spouse or partner who died before the first of April 2021. You can indicate the date of the death of a person in his file. To do this, select the caption “Interview setup,” navigate to the right page, and click in the box on the line tagged “Tax return for a deceased person.”

Navigate to the page titled “Deceased taxpayer” input the date of death and on the section “Type of return for the year of death” from the pop-up menu, click on “Deceased taxpayer next year (Memo).” To complete this process, answer “No” to the question on the third line.

Claiming CAI payment for an Eligible Dependent

You can get the CAI payment for a dependent if on New Year’s Eve, 2020, your child or your dependent:

  • If he/she lived with you
  • Depend on you to support themselves
  • If he/she was not married or in a relationship
  • If he/she was not a parent living along with his child
  • If he/she was under the age of 18

Applying for Climate Action Incentive

You can apply for the CAI on your tax return using your T1 form if you are a resident of Ontario, Manitoba, Alberta, or Saskatchewan. Bear in mind that only one credit is allotted to a household. So you’ll have to decide which member of your family will apply for the credit. It does not matter who applies for the CAI in your household. If only one person is eligible, that person should claim it.

Regardless of who applies, you’ll receive the same allowance. You can begin the process by answering “Yes” to the question “Will you claim the climate action incentive (carbon tax credit)” on your tax return. You can find this question in the ‘About You’ section of your tax return. If you don’t see the question, it most likely means you are not eligible to receive CAI.

Your share of the payment will be added directly to your tax refund. You won’t be charged for carbon pollution if you don’t reside in the provinces mentioned above. Also, you won’t qualify for the CAI. Reasons being that your province already has a provincial carbon tax, or your provincial government is working towards providing a carbon pollution pricing system that meets the federal standard.  

Eligible Amount Due Per Household

Unlike other tax credit, Climate Action Incentive is not based on your income. Every household is entitled to the same allowance. Your Climate Action Incentive due will depend on the following:

  • Your province in Canada
  • The number of children in your household
  • Your marital status

Generally, a family of four will receive :

  • CA$1000 as Climate Action Incentive in Saskatchewan
  • CA$720 Climate Action Incentive in Manitoba
  • CA$600 Climate Action Incentive in Ontario
  • CA$981 Climate Action Incentive in Alberta

People living in rural areas receive higher incentives – about 10% higher than those living in the cities. This is because they likely utilize more energy and have fewer public transportation options to reduce their fuel consumption.

Conclusion

The Climate Action Incentive payment encourages businesses and individuals to seek cleaner solutions to pollution. This is a government initiative aimed at encouraging more environmentally sustainable solutions.

The proceeds from pricing carbon pollution go back to the province where they were received. The federal system does not permit the government to hold on to any direct carbon pollution pricing proceeds.

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.