Canadian motorists facing soaring prices at the pump have received a temporary reprieve: the tax holiday on gas will continue. Finance Minister François-Philippe Champagne announced yesterday that the federal government will extend the suspension of the federal fuel excise tax into early 2027, delaying a 10-cent-per-litre increase previously scheduled to take effect after Labour Day 2026.
Under the revised plan, the federal excise tax on gasoline and diesel will remain at zero cents through January 31, 2027. A phased reinstatement will follow: a half-rate levy of five cents per litre on gasoline and two cents on diesel will apply from February 1 to March 31, before the full rate of 10 cents for gasoline and four cents for diesel is restored on April 1, 2027.
The decision marks a shift from early August, when Champagne indicated that the tax holiday would end on September 7 as planned, citing the need for fiscal responsibility. Since then, however, the government was subject to growing political pressure from provincial leaders and opposition parties, as well as facing mounting public frustration over pump prices. In major markets like Montreal, the two-dollar mark has been crossed regularly in recent weeks.
Ottawa attributed the ongoing volatility in fuel costs to broader global pressures, including international conflicts in the Middle East and ongoing trade tensions.
“Canadians should not have to pay for what they did not cause—whether it is disruption in the Middle East or an unjustified trade war,” Energy and Natural Resources Minister Tim Hodgson stated, framing the extension as a direct affordability measure for families and transport industries.
There’s a cost to the holiday extension
The extension carries a significant price tag for federal coffers. According to the Department of Finance, maintaining the tax holiday adds $2.9 billion to the deficit, bringing the total cost of the relief program to an estimated $5.3 billion for the 2026–27 fiscal year. When questioned about returning the tax in the spring, Champagne reaffirmed that the government must balance immediate consumer relief with overall fiscal responsibility.
While the full 10-cent tax returns in April 2027, drivers may start to feel a bit of pain as of February 1, when half the levy returns at pump stations nationwide.