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Zero-Emission Vehicles – Tax Incentives


If you are considering purchasing an electric vehicle (EV), you may be eligible for an incentive rebate off the Manufacturer’s Suggested Retail Price (MSRP) on many new EVs and plug-in hybrids through the federal government’s Incentives for Zero-Emission Vehicles (iZEV) program. The iZEV program launched May 1, 2019 and has garnered interest across the country. It is set to end by March 31, 2025, or earlier, if available funding runs out.


Eligible Vehicles


New passenger cars, where the base model MSRP is under $55,000 (or higher trim level models up to $65,000)


New larger zero-emission vehicles (such as station wagons, pick up trucks, SUVs, vans & mini-vans), where the base model MSRP is under $60,000 (or higher trim level models up to $70,000).


Vehicles are still eligible even where additional costs (delivery, freight, accessories, options) cause their total price to exceed these MSRP limits.


Note: eligible EVs that are test-drive/demonstrator vehicles at dealerships may qualify as long as the odometer reads less than 10,000 kilometres (km).


Find out if your desired vehicle qualifies on Transport Canada’s list of eligible vehicles.


Two Levels of Federal Incentives


Battery-electric, hydrogen fuel cell, or longer-range plug-in hybrid are eligible for a rebate of up to $5,000;


Shorter-range plug-in hybrid EVs are eligible for a rebate of up to $2,500;


Range is determined based on the plug-in hybrid EVs electric-only range in kms. Longer-range plug-in hybrid EVs must have an electric-only range of at lease 50 kms. Plug-in hybrid EVs with less than 50 kms electric-only range are considered short-range.


Full rebates are available on purchase, or with a long-term (48-month) lease. Shorter leases of at least 12 months are eligible for a prorated rebate.


Best of all, the discount received through the iZEV program is applied directly by the dealership at the point of sale or lease. The iZEV incentive is applied after the applicable sales taxes are determined. Individuals are eligible for one iZEV incentive per calendar year.


EVs for your Business


Businesses purchasing or leasing new EVs can also take advantage of the iZEV program by applying the rebate at the time of purchase or lease. Businesses are eligible for up to 10 such incentives per calendar year.


For purchased vehicles, the net cost would be available to businesses to depreciate under the normal rules, $30,000 capital cost limit and rates of depreciation applicable to passenger vehicle classes. Alternatively, businesses can opt to forgo government rebates and instead utilize one of the new depreciation classes for EVs introduced in the 2019 federal budget.


The new classes for zero-emission vehicles offer an enhanced write-off of up to 100% in the first year of ownership, up to $59,000 plus tax, subject to class-specific rules. Depending on the class, any remaining balance can be expensed at 30% or 40%. Before choosing this full write-off option, be aware of the tax cost of greater recaptured depreciation that may apply at disposal. Recapture occurs when the vehicle is disposed of for more than its undepreciated balance with the result that previously expensed depreciation is brought back into income for tax purposes. The 100% write-off option is set to phase out beginning 2024.


For GST/HST purposes, the usual cost limit of $34,000 on which GST/HST may be recovered through input tax credits is similarly increased to $59,000 for EVs used for business.


Determining which option is optimal for your business will depend on the class of the EV for depreciation and the intended lifespan of its business-use. Your DFK accountant can help you assess which option makes the most sense for your business.


Provincial Incentives


In addition to the federal incentives, residents of Ontario and Quebec should be aware of the additional incentives that may be available to them:


Ontario Residents


The Ontario provincial rebate program for EV purchases was cancelled in 2018 shortly after the Ford government was elected that year. At the time, the Ontario program offered rebates of up to $14,000 for fully-electric vehicles. With Premier Ford now making a strong push for the electric vehicle industry in Ontario, it will be interesting to see if provincial rebates are reintroduced following his latest majority win at the June 2022 election.


CRA resources:

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/capital-cost-allowance/classes-depreciable-properties/zero-emission-vehicles.html


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