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Can I Deduct Zero-Emission Vehicles From My Business?

October 29, 2019

Tax Question:

If I purchase a zero-emission vehicle (ZEV), can I deduct it from my business?

Facts:

A ZEV is a vehicle that has the potential to produce no tailpipe emissions. While the ZEV can still have a regular internal combustion engine, it must be able to operate without using it. This includes battery-electric, plug-in hybrid electric and hydrogen fuel cell. To reduce greenhouse gases in Canada, the Government of Canada has introduced incentives for companies purchasing ZEVs. The federal government is providing up to $5,000 when a ZEV is purchased. Alternatively, companies can take advantage of accelerated depreciation rates for corporate taxes.

Discussion:

In order to be eligible for an incentive, the ZEV must be purchased or leased on or after May 1, 2019, that is:

  • A new vehicle with six or fewer seats and has a base model price of less than $45,000 or has a higher-priced version (i.e. sport model, touring model, etc.) up to $55,000; OR
  • A new vehicle with seven or more seats and has a base model price of less than $55,000 or has a higher-priced version (i.e. sport model, touring model, etc.) up to $60,000.
 

If a ZEV is purchased or leased that is greater than the thresholds listed above, the incentive is lost. However, if delivery, freight and other add-on fees (i.e. vehicle colour, add-on accessories) cause the cost of the ZEV to be over the limits above, the incentive will not be lost. Also, the amount of incentive received can vary depending on the vehicle’s battery capacity and a company can purchase up to 10 new ZEVs per calendar year to take advantage of the incentives. Alternatively, instead of taking an incentive, a company is allowed to take a temporary accelerated depreciation rate for tax purposes. It is not allowed to take both the incentive and the accelerated depreciation rates. In the year of purchase, 100% of the cost of the new ZEV can be deducted. This accelerated rate is valid for new purchases from March 19, 2019, to the end of 2023. Depreciation rates will drop to 75% for 2024 and 2025 and then to 55% for 2026 and 2027. Generally, this will provide immediate tax savings; however, if the ZEV is later sold, the full proceeds could be taxed as the tax net book value will be Nil. If a ZEV is not fully amortized in the year of purchase, the remaining balance is depreciated at 30%.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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