The Federal government has recently announced new incentives to make zero-emission vehicles (“ZEV”) more affordable for Canadians. If you are considering purchasing an electric, hybrid, or hydrogen fuel car, then keep reading to see how you may qualify.
Incentive for Zero-Emission Vehicles (“iZEV”) Program
Effective May 1, 2019, the federal government will provide a point-of-sale incentive for consumers who buy or lease an eligible ZEV. An iZEV incentive of up to $5,000 is available, depending on the type and range of the vehicle, and is in addition to any provincial zero-emission incentives that are offered in certain Canadian provinces. To be eligible for the federal iZEV program, the vehicle must be:
- A vehicle with 6 seats or fewer where the base model Manufacturer’s Suggested Retail Price (“MSRP”) is less than $45,000; or
- A vehicle with 7 seats or more, where the base model MSRP is less than $55,000.
Higher priced versions (i.e. higher trim level) of vehicles that meet the above criteria may also be eligible for the iZEV program, provided that their MSRP is not more than $55,000 (6 seats or fewer) and $60,000 (7 seats or more).
Eligible vehicles that are leased for 48-months or longer will receive the full incentive. The incentive will be prorated for shorter leases.
In order to receive the incentive, the dealership is responsible for sending the required documentation to Transport Canada. The incentive amount will then be applied directly to the customer’s bill of sale or lease agreement.
Each individual is eligible for one incentive under the iZEV program per calendar year. Businesses and governments operating fleets are eligible for up to 10 incentives under the iZEV program per calendar year.
Enhanced Capital Cost Allowance
As part of the 2019 federal budget, the government has proposed a 100% write-off in the first year that a ZEV is purchased for use in a business. This could include businesses operated through corporations, self-employed individuals, and even employees who are required to use their vehicles for work purposes.
To be eligible, the ZEV must be:
- A plug-in hybrid with a battery capacity of at least 15kWh or fully electric or fully powered by hydrogen or powered by a combination of electricity and hydrogen; and
- A brand new vehicle purchased on or after March 19, 2019 (used vehicles do not qualify).
To implement these new measures, two new classes have been created for capital cost allowance (“CCA”) purposes. Generally, eligible ZEVs that previously would have been included in class 10 or 10.1, such as passenger vehicles, would now be included in new class 54. ZEVs that previously would have been included in class 16, such as taxis or freight
Important: Note that purchasers which received government incentives or rebates cannot include their vehicle in Class 54 and that vehicle WILL NOT qualify for the 100% write-off in the first year. Normal rates of CCA will apply.
Where the vehicle is a zero-emission passenger vehicle to be included in class 54, the write-off is capped at a purchase price of $55,000 plus sales tax. There are restrictions on the amount of CCA to be claimed if the vehicle is not used 100% of the time for income-earning activities.
The restrictions can be minimized by selecting either an SUV, van, or pickup for your income-earning activities. Note that sedans or coupes receive the least favorable tax treatment under the CCA rules.
In my opinion, it would be best to take the government incentives or rebates and not take the 100% write-off in the first year. Currently, the CCA eligibility in the first year of ownership is 30% and 30% each year thereafter until the vehicle is depreciated. This will realize the tax savings in 3 to 4 years and you receive the rebates. Note that most buyers have been opting for vehicles in excess of the $55,000 cost threshold and allowing for the entire purchase cost to be depreciated.
Please review the vehicle definition chart in the link below to ensure your purchase qualifies as a “motor vehicle” rather than a passenger vehicle to ensure the best possible income tax treatment for your ZEV.
Original Source: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses/motor-vehicle-expenses/type-vehicle.html