As our transportation methods are a huge source of greenhouse gas (GHG) emissions in Canada, moving to a vehicle that can operate without using its internal combustion engine, potentially producing no emissions, seems like the way to help reduce those GHGs. Due to this, the Canadian government has been coming up with ways to make getting a ZERO Emission Vehicle possible for more people, through purchase and lease incentives, and business tax write-offs.
First, what is a Zero-emission Vehicle(ZEV)?
There are 3 distinctive designs that are considered “zero emission”.
- Plug-In Hybrids which combines a gas powered engine with a battery that is rechargeable from the electrical grid.
- Battery Electric Vehicles which runs entirely on electricity.
- Hydrogen Fuel Cell Vehicle which runs on electricity produced from a fuel cell using hydrogen gas.
Whichever one you choose to purchase is up to you but the Canadian government is encouraging you to buy/lease for a very important reason. According to the Transport Minister Marc Garneau, this program is expected to reduce emissions by 36,000 tonnes per year, or 429,000 tonnes over the lifespan of the vehicle.
What incentives are there?
ZEVs can be expensive. This is the reality right now due to the production costs to make them zero-emission. So how do we get this to hurt a little bit less so we can make this eco-purchase?
Purchase and Lease incentives, effective May 1, 2019
Level 1 Incentive: Anyone that purchases/leases one of these 3 types of vehicles, will receive $5,000.
Level 2 Incentive: For shorter range plug-in hybrids, expect to receive a $2,500 incentive.
Like all incentives, there are qualifying details you must be aware of. Aside from ensuring that the vehicle is one of the 3 types listed above, they must also fall into one of these two categories.
- MSRP less than $45,000 (vehicle with 6 or less seats) Higher priced vehicles are accepted as long as it doesn’t go over the $55,000 sales price.
- MSRP less than $55,000 (7 or more seats) Higher priced vehicles are also accepted as long as the sales price does not exceed $60,000.
Side note: You will still be eligible for the incentive even if delivery, freight and other fees, such as vehicle colour and add-on accessories, push the actual purchase price over these set limits.
Businesses experience a tax incentive by way of the capital cost allowances for ZEVs that were purchased for the business. Some of the ZEVs may qualify for a 100% CAA write-off under Class 54 and 55. There are specific qualifiers that the vehicle must fall under, in addition to those listed above. Of particular note is that the enhanced first-year CAA has a phase out period with the 100% lasting only from March 18, 2019 to before 2024. For more information, you’ll want to review all the details on the CRA ZEV page.
As with all good things, there is a limit. Individuals may purchase/lease one vehicle for each calendar year; business owners that choose to reduce your own business footprint, may be able to purchase/lease up to 10 vehicles in a calendar year.
How to receive the incentive?
This incentive will be applied directly from the dealership when you purchase the vehicle, on the bill of sale or lease agreement after May 1, 2019.
Side Note: If you owned the vehicle before May 1,2019, you will not be eligible for this program.
Curious if your next car purchase might qualify? Check out the most current list of ZEVs at Transport Canada – Zero Emission Vehicles
Which provincial program coincides with this incentive?
New vehicle classes
In 2019, CRA created two new classes for Zero-emission vehicles that is powered by sources other than gas. You don’t use the first year half-rule: claim ½ of the CCA rate in the first year of use.
Class 54 (30%): this class is used for zero-emission vehicles that would otherwise be included in classes 10 or 10.1 with the same rate of 30%. The CCA limit for this class is $55,000 (which is reviewed by CRA every year). An enhanced first year CCA deduction is introduced in this class:
- 100% after March 18, 2019 and before 2024
- 75% after 2023 and before 2026
- 55% after 2025 and before 2028
Tim bought a zero-emission car for $70,000 in 2020. It would have normally been in Class 10.1.
The enhanced first-year allowance that he can use is: $55,000 x 100% = $55,000
His first year CCA is $55,000, which is also the amount of UCC at year end.
If he sells the car for $20,000, then he should deduct part of his proceeds from the UCC = $20,000 x ($55,000/$70,000) = $15,714.29
For Class 54, applying the prescribed CCA rate of 30% to:
- 2 1/3 times the net addition to the class for property that becomes available for use before 2024
- 1 1/2 times the net addition to the class for property that becomes available for use in 2024 or 2025
- 5/6 times the net addition to the class for property that becomes available for use after 2025 and before 2028
Class 55 (40%): used for zero-emission vehicles that would normally be included in Class 16. This class has the same rules as Class 54.
For Class 55, applying the prescribed CCA rate of 40% to:
- 1 1/2 times the net addition to the class for property that becomes available for use before 2024
- 7/8 times the net addition to the class for property that becomes available for use in 2024 or 2025
- 3/8 times the net addition to the class for property that becomes available for use after 2025 and before 2028
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