Zero-emission vehicles (EVs)

Planning to buy a new car? Are you looking at zero-emission vehicles? “It is good for the environment & your tax bill.”

In 2019, the Canadian government introduced several incentives to make purchasing eligible zero-emission vehicles, also called electric cars or EVs, more affordable.

EVs include a range of vehicle type, such as:
– Battery-electric vehicles — runs on electricity.
– Plug-in hybrid electric — combines a gas-powered engine with a battery that recharges by plugging it into an electric source.
– Hydrogen fuel cell — powered by an electric motor that runs on electricity created by an on-board fuel cell.

Incentives available for individuals & businesses

One drawback of EVs is the high upfront purchase price. This often deters buyers, especially those on a tight budget from considering purchasing one. To help make adopting clean technology more affordable, the federal government has introduced Incentives for Zero-Emission Vehicles (iZEV) Program & tax write-offs for businesses.

Purchase or Lease Point-of-Sale Incentives

This component of the program offers financial incentives to individuals & businesses at the time of purchase or lease of eligible EVs. These incentives can significantly reduce the upfront cost of acquiring an EV, making them more financially accessible & attractive options.

Tax write-offs for business

The program also offers an enhanced capital cost allowance deduction for businesses. This deduction applies to iZEVs that fall under either Capital Cost allowance (CCA Class) 54^* or 55. The enhanced CCA deduction allows businesses to claim a larger portion of the cost of the ZEV as a tax deduction, which can have positive implications for their overall tax liability.

It’s important to note that recipients of incentives through the program can only benefit from one of these two options. If a business has received a point-of-sale incentive, they are not eligible to claim the enhanced capital cost allowance deduction.

*Class 54 Motor Vehicles & Passenger Vehicles

For assets falling under Class 54, which includes motor vehicles & passenger vehicles, the prescribed Capital Cost Allowance (CCA) rate is set at 30%. However, it’s important to note that a higher deduction rate, potentially reaching up to a maximum of 100%. may apply for certain eligible vehicles acquired after March 18, 2019, & before January 1, 2028 (phase out starting in 2024).

Regarding the deductibility of capital costs, an upper limit of $59,000, inclusive of sales tax, is applicable for the tax year 2022 specifically for zero-emission passenger vehicles falling within this category. This limit represents an increase from previous years. In the period spanning 2019 to 2021, the allowable deductible limit was established at $55,000.

Example: (Note: This is just an example; tax rates & some information may vary) XYZ bought a zero-emission car for $50,000 in 2022. It would have normally been in Class 10.1. The enhanced first-year allowance that XYZ can use is: $50,000 x 100% = $50,000 XYZ’s first year CCA is $50,000, which is also the amount of UCC at year end.

Option 1: XYZ opting for Point-of-sale incentive:
Potential Tax Savings in First Year – Regular CCA & iZEV Program
Class 10.1 CCA
= $35,700 (34,000 plus 5% GST) x 30% CCA x 60% business use x 30% tax rate
= $1,928
iZEV Program Incentive
= maximum of $5,000 (one time)
Total = $ 6,928

Option 2: Potential Tax Savings in First Year – Enhanced CCA
Class 54
= $52,500 ($50,000 plus GST) x 100% enhanced CCA rate x 60% business use x 30% tax rate
= $9,450
In this specific situation, XYZ might have the opportunity to achieve greater tax savings by opting for the enhanced CCA claim instead of availing the iZEV program incentive.

If you have any questions about Zero-emission vehicles (EVs) or would like more information on how this incentive can assist you &/or your business in reducing its tax bill, please don’t hesitate to reach out to us.

Photo by Michael Fousert on Unsplash