From Rebate to Rate Cut: Low-Income Households Lose Out

From: Leslie Shiell and Nicholas Dahir
To: Tax observers
Date: July 17, 2025
Re: From Rebate to Rate Cut: Low-Income Households Lose Out

Under the discontinued federal carbon price and rebate system (CPRS), eligible Canadians received tax-free rebate payments to offset the cost of carbon pricing with many households receiving more in rebates than they paid in fuel charges.

Three months after the rebate’s April 1 demise, the marginal federal personal income tax (PIT) rate dropped from 15 percent to 14 percent. Billed as a response to affordability pressures, this measure is estimated to cost $5.5 billion in 2026.

This Memo compares the CPRS and the PIT cut through the lens of affordability, presenting the distribution of the average impact on households under each scheme.

The table presents Parliamentary Budget Office estimates of average household net benefit from carbon rebate in 2026, including economic impacts, by household total income quintile for the provinces covered by the CPRS – all except Quebec and British Columbia. Using version 30.1 of Statistics Canada’s Social Policy Simulation Database and Model (SPSD/M), we also present our estimates of the average household tax savings from the PIT cut for 2026.

The scale of benefits and costs under the CPRS are directly affected by the carbon price. For 2026, it was fixed at $110 per tonne of CO₂-equivalent, while in its last year of operation, 2024, it was $80. Recent research (Shiell 2025) has indicated that, in 2024, 50 percent or more of households in four of the eight provinces experienced net benefits. This is in line with PBO’s estimates which find that 2026 households in the first and second total income quintiles receive average net benefits ranging from $107 to $950. In the third quintile, only households in Saskatchewan received an average net benefit. In the other provinces, carbon charges exceeded rebates, resulting in average net costs. In quintiles four and five, households in all eight provinces have average net costs, reaching $3,439 in Newfoundland and Labrador.

The PIT cut delivers benefits in all quintiles – though unequally. Average tax savings for households in the top quintile range between $614 (New Brunswick) and $663 (Ontario) and. However, since low income individuals see their reduction in initial income tax almost or entirely offset by the coinciding reduction in non-refundable credits, households in the bottom quintile receive little to no benefit – averaging less than $40 in each province.

The table also illustrates the net effect on affordability for 2026 after the elimination of the CPRS and after the PIT cut. Higher-income households which had net costs under the CPRS are all better off. Average gains for the top quintile range from $1,979 in New Brunswick to $4,057 in Newfoundland and Labrador. Results are mixed in the second quintile. Households in Newfoundland and Labrador, Nova Scotia, Manitoba, Saskatchewan and Alberta – provinces which had higher average net benefits under the CPRS – are worse off while households in Prince Edward Island, New Brunswick, and Ontario are moderately better off. For the lowest-income quintile, however, all households are worse off in 2026, with losses ranging from $289 in New Brunswick to $934 in Saskatchewan.

The federal government should carefully consider the distributional impacts of its policy decisions when addressing affordability concerns. The elimination of the CPRS leaves high income households better off. Paired with the PIT cut, affordability improves among households with more moderate incomes in some provinces. But low-income households most affected by affordability pressures remain worse off in 2026 than they would have been if the CPRS had stayed in place, despite the PIT cut.

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