This article is taken from our quarterly overview of Canadian news, a newsletter published by the Canadian member firms of Moore Stephens North America. These articles are part of our mission to become the partner of choice for your success by keeping you up to date.
Since March 19, 2019, a company that acquires a zero-emission vehicle (such as electric vehicles) can benefit from attractive tax incentives. Indeed, in Bill C-97 (first budget implementation bill of 2019, second reading on April 30, 2019), Finance Canada adds two new depreciation classes for zero-emission vehicles. Here’s an overview of the new measures.
The vehicles concerned are motor vehicles (within the meaning of subsection 248(1) of the Income Tax Act) acquired new and ready to be put into service after March 18, 2019 and before 2028 that are fully electric or plug-in hybrids using a battery of at least 15 kWh or powered by hydrogen. In addition, at the time of acquisition, the company must not have received financial assistance from the Government of Canada under the federal purchase incentive announced on March 19, 2019 as part of the budget for acquisitions made on or after May 1, 2019.
Eligible vehicles may be registered in class 54 (30% CCA rate) for passenger vehicles, or in class 55 (40% CCA rate) for cabs and rental cars. Inclusion in classes 54 and 55 is not mandatory, so the company may elect (under subsection 1103(2j) of the Income Tax Regulations) to register these vehicles in classes 10, 10.1 or 16, as the case may be.
As with Class 10.1, a limit of $55,000 plus tax applies to the capital cost eligible for capital cost allowance (CCA) on Class 54 vehicles. This new $55,000 limit will be reviewed annually.
However, unlike class 10.1, class 54 does not provide a separate class for each vehicle costing more than $55,000. In addition, a final salvage or loss will have to be calculated when disposing of a vehicle included in these new categories. To this end, subparagraph 13(7)(i)(ii) ITA introduces a new calculation of proceeds of disposition. This will be calculated in proportion to the capital cost registered in the class at the time of acquisition (i.e. maximum of $55,000 for 2019) on the actual acquisition cost of the vehicle. This will reduce the proceeds of disposition to the capital cost limit of $55,000.
In parallel with the new accelerated investment incentive rules, vehicles in classes 54 and 55 will be eligible for an accelerated CCA rate in the first year after acquisition of 100%. This measure will be phased out between 2024 and 2028.
Finally, these new measures will have an impact on the Excise Tax Act. Indeed, Budget 2019 proposes to amend the GST/HST rules to increase to $55,000 the input tax credit limit that can be claimed by businesses that have acquired a zero-emission vehicle eligible for the new rules described above.
As mentioned above, since May 1, 2019, these new measures have been supplemented by new incentives for businesses to purchase. Transport Canada’s incentive would provide a rebate of $2,500 to $5,000 on the purchase of an electric or hybrid vehicle if the MSRP is less than $55,000 for cars with six or fewer passengers, and $60,000 for cars with seven or more passengers. Some provinces also offer purchase incentives similar to those offered by the federal government.
All in all, these new measures will certainly make zero-emission vehicles more affordable for companies, and encourage them to make the transition to green energy.
This is the second in a series of articles by Caroline Galipeau, M. Fisc. of Marcil Lavallee on transactions and valuation issues relating to small and medium-sized private companies. This text was written as part of our quarterly overview of Canadian news, a newsletter published by the Canadian member firms of Moore Stephens, North America.
