Zero-Emission Vehicles

This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America. These articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news.

Since March 19, 2019, companies that purchased zero-emission vehicles (such as an electric vehicle) have been able to benefit from attractive tax incentives. In Bill C-97 (first budget implementation bill of 2019, second reading of April 30, 2019), the Canadian Department of Finance added two new depreciation categories for zero-emission vehicles. Here is an overview of the new measures.

The vehicles covered are motor vehicles (as defined in subsection 248(1) of the Income Tax Act) which are acquired new and ready to be used after March 18, 2019 but before 2028 and which are entirely electric or hybrid vehicles that can be recharged with a battery of at least 15 kWh or that are powered by hydrogen. In addition, at the time of acquisition, the company must not have received financial aid for the purchase from the Canadian government under the federal purchasing initiative announced on March 19, 2019 as part of the budget for acquisitions made after May 1, 2019.

Eligible vehicles may be registered under Class 54 (30% CCA rate) for passenger vehicles, or Class 55 (40% CCA rate) for taxis and rental vehicles. The inclusion of Classes 54 and 55 is not mandatory; therefore, the company could choose (under subsection 1103(2j) of the Income Tax Regulations) to register such vehicles under Class 10, 10.1 or 16 depending on the circumstances.

As with Class 10.1, a limit of $55,000 plus tax applies to the capital cost that is eligible for capital cost allowance (CCA) for Class 54 vehicles. This new limit of $55,000 will be re-evaluated annually.

However, unlike Class 10.1, Class 54 does not include a separate category for vehicles whose cost exceeds the $55,000 limit. In addition, a final recovery or loss must be calculated when a vehicle included in these new Classes is sold. To this effect, subsection 13(7)(i)(ii) of the ITA includes a new calculation for proceeds of disposition. Proceeds will be calculated as the ratio of the capital cost registered in the Class at the time of acquisition (i.e., a maximum of $55,000 for 2019) divided by the vehicle’s real acquisition cost. This will reduce the proceeds of disposition according to the capital cost limit of $55,000.

Along with the new rules on the accelerated investment initiative, vehicles in Classes 54 and 55 may be eligible for an accelerated CCA rate of 100% the first year after acquisition. This measure will be progressively abolished between 2024 and 2028.

Finally, these new measures will affect the Excise Tax Act. The 2019 budget proposes a modification of the GST/HST rules in order to increase the input tax credit limit to $55,000 for businesses that have acquired a zero-emission vehicle eligible for the new rules described above.

As mentioned previously, on May 1, 2019, new business purchasing initiatives were added to these new measures. The Transport Canada initiative should make it possible to obtain a rebate of $2500 to $5000 on the purchase of an electric or hybrid vehicle if the MSRP is less than $55,000 for six-passenger vehicles and fewer, and $60,000 for vehicles for seven or more passengers. Some provinces also offer purchasing initiatives similar to the federal ones.

All in all, these new measures will certainly make zero-emission vehicles more affordable for businesses and will encourage them to make the transition to green energy.

Contributed by Caroline Galipeau, M. Fisc., and Marcil Lavallee. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore North America.