Federal Budget - $55,000 potential deduction for Electric/PHEV cars

[sakimano]

The budget contained an item allowing for people who use their cars for business use and are eligible to write them off to be able to to basically write down the capital cost in year one if you purchase an electric car or PHEV.

Has anyone dug into this?

Is it $55,000 on any car? Or cars that are $55,000 or less in MSRP only? (i.e. a Model S or X are out of the picture as are most desirable Model 3 configurations)
If the latter, is that $55,000 before options and all in?

In thery if you use your car 100% for work and are a top marginal taxpayer, you're looking at a potential $29,000 break on buying an electric car in year one/purchase. The work/personal ratio breaks down the amount that you can apply i.e. 50% work and 50% personal use = up to $27,500 deduction which is still significant at $14,500 tax savings.

Of course I'm not comparing this to leasing a car and writing that off, or depreciating a car normally so I'm just wondering if anyone has done the math on the potential benefit vs the current system.

 

[Icenick]

I'm interested in this as well. Typically from my understanding how it works is the right off is not for the value of the car it's up to that value so if you were to buy a model s or x you could only write off $55,000. The only thing that concerns me is the year one right off to me that would be next to useless since I don't make that much in a year. How I deduct my car now is based on the class, cars I believe are at 30%. So the first year on a $30,000 car you could expense 10000 year to 30% of the 20,000 that remains and so on. Sorry I don't have the answer but I'm also curious how if this will affect me

 

[Kenypowa]

I'm interested in this as well. Typically from my understanding how it works is the right off is not for the value of the car it's up to that value so if you were to buy a model s or x you could only write off $55,000. The only thing that concerns me is the year one right off to me that would be next to useless since I don't make that much in a year. How I deduct my car now is based on the class, cars I believe are at 30%. So the first year on a $30,000 car you could expense 10000 year to 30% of the 20,000 that remains and so on. Sorry I don't have the answer but I'm also curious how if this will affect me

First year the limit is 15% depreciation and subsequent year is 30%.

 

[Funkmobile]

//copy and pasting my earlier response in the 2019 Budget thread:

The exact wording is:

Immediate expensing will apply to eligible vehicles purchased on or after March 19, 2019 and before January 1, 2024. Capital costs for eligible zero-emission passenger vehicles will be deductible up to a limit of $55,000 plus sales tax. This is higher than the capital cost limit of $30,000 plus sales tax that currently applies to passenger vehicles. This new $55,000 capital cost limit reflects the comparably higher cost of zero-emission vehicles and will be reviewed annually to ensure that it remains appropriate as market prices evolve over time.

So what the minister is referring to here is CCA Class 10 which traditionally has a limit of $30,000 that can capitalized and be eligible for CCA deduction. So if you bought a Ferrari for a "company car" for $500K, you can only declare $30,000 of that cost to be a capital asset. (and technically the Ferrari would go into a special CCA Class 10.1 because the total cost of the car is greater than $30,000) .

You also get a GST/HST rebate on the cost of the car up to $30,000 which is part of your normal GST/HST filed return.

With CCA Class 10/10.1, the half year rule applies, which means in the 1st year of purchase of the car, you can only take a half deduction of the normal rate. For CCA Class 10/10.1 the normal rate is 30%. So if you bought your Model 3 in 2019, you can only claim a 15% CCA deduction for 2019 tax year regardless if you bought it on January 1, 2019 or December 31, 2019.

Now the budget proposes that the limits be raised on EV's from $30,000 to $55,000 which means a P100D would be capitalized at $55,000 and you would also get a GST/HST rebate up to the cost of $55,000.

I also suspect they will create a new special CCA class called 10.2.

 

[dj_gon]

It sounds like you can write off 100% in the first year from the wording of the budget but we won't know until it's official. Say you get a model 3 standard+ for $55k, you get the following extra incentives:

1. HST = $20k x 13% (Ontario) = $2,600 worth of HST
2. Reduction in corporate tax (assuming small business) = $20k x 12.5% = $2,500 - If it goes through the regular CCA schedule then by the end of 5 year period, you can only get back $15,933 x 12.5% = $1,991.

Like any tax credits, they are merely not taking as much from you rather than giving you something...

 

[Funkmobile]

It sounds like you can write off 100% in the first year from the wording of the budget but we won't know until it's official. Say you get a model 3 standard+ for $55k, you get the following extra incentives:

1. HST = $20k x 13% (Ontario) = $2,600 worth of HST
2. Reduction in corporate tax (assuming small business) = $20k x 12.5% = $2,500 - If it goes through the regular CCA schedule then by the end of 5 year period, you can only get back $15,933 x 12.5% = $1,991.

Like any tax credits, they are merely not taking as much from you rather than giving you something...

I've interpreted the wording to be an increase of the existing CCA limits. All the other rules and percentages would stay the same.

Also be careful with your wording of "tax credits". CCA is a deduction and tax credits are treated differently.

 

[dj_gon]

I've interpreted the wording to be an increase of the existing CCA limits. All the other rules and percentages would stay the same.

Also be careful with your wording of "tax credits". CCA is a deduction and tax credits are treated differently.

To further support businesses’ adoption of zero-emission vehicles, Budget 2019 proposes that these vehicles be eligible for a full tax write-off in the year they are put in use.

The way I interpret it that the EV may be eligible for a 100% CCA in the first year. Again, unlike yourself, I'm not too sure about that so we'll find out more about it later this year.

I don't have to be careful. To me, they are the same - it reduces the amount of tax I'm paying.

 

[sakimano]

I'm pretty sure you can write off the entire $55,000 in year one. That's the big change (as well as the increase from $30,000 to $55,000).

My real question is whether or not this will be applicable to cars worth more than $55,000 or just cars at $55,000 or less.

The one thing I don't get is what happens when you sell the car. I believe any value received would be taxed as income in your hands if you've written down the entire car...wouldn't it? i.e. buy a model 3 year one...drive it for a year...write off the $55,000 and get $28,000 back if you're top MTR...then in year 2, you sell it for $40,000. I reckon the $40,000 would be taxable as income.

 

[dj_gon]

I'm pretty sure you can write off the entire $55,000 in year one. That's the big change (as well as the increase from $30,000 to $55,000).

My real question is whether or not this will be applicable to cars worth more than $55,000 or just cars at $55,000 or less.

The one thing I don't get is what happens when you sell the car. I believe any value received would be taxed as income in your hands if you've written down the entire car...wouldn't it? i.e. buy a model 3 year one...drive it for a year...write off the $55,000 and get $28,000 back if you're top MTR...then in year 2, you sell it for $40,000. I reckon the $40,000 would be taxable as income.

It certainly sounds like a loophole but I'm sure these guys at CRA are smart enough to prevent people from doing that. Also, I think you don't have to buy a car within $55k limit as the max you can claim for CCA is $55k. This works out great for people who is looking to buy a Tesla.

 

[sakimano]

It certainly sounds like a loophole but I'm sure these guys at CRA are smart enough to prevent people from doing that. Also, I think you don't have to buy a car within $55k limit as the max you can claim for CCA is $55k. This works out great for people who is looking to buy a Tesla.

Tim Cestnick wrote an article about this in the globe the other day but I can't find it because it is now behind a pay wall. If someone wants to post his interpretation it would seem to indicate there's a max car price of $55k rather than max deduction. It's amazing that we don't know and it's already a week after the budget. And it's march 28

 

[dj_gon]

Tim Cestnick wrote an article about this in the globe the other day but I can't find it because it is now behind a pay wall. If someone wants to post his interpretation it would seem to indicate there's a max car price of $55k rather than max deduction. It's amazing that we don't know and it's already a week after the budget. And it's march 28

Does that mean if the EV is over $55k (hypothetically CCA class 10.2), then it will be bumped back to class 10.1? That doesn't make any sense but who knows. The Liberals should have made everything clear to lure people to vote for them.

 

[hiener]

Budget change could offer sizable tax savings on a new car

Tim Cestnick wrote an article about this in the globe the other day but I can't find it because it is now behind a pay wall. If someone wants to post his interpretation it would seem to indicate there's a max car price of $55k rather than max deduction. It's amazing that we don't know and it's already a week after the budget. And it's march 28

Budget change could offer sizable tax savings on a new car

 

[versace_wang]

There are 2 options, if you claim 5000$ from federal EV POS rebate, then you cannot claim 100% CCA at the year of acquisition. or if you do not claim the 5000$ then you can write off the car up to 55k plus non-refundable taxes such as provincial taxes.

however, seems like Tesla retains the value very well. so if you do not claim the federal 5k rebate, claim 100% CCA up to the 55k threshold, your UCC would be zero, the catch is that at the year of disposition (the year you sell your tesla or trade in for a new car, you would have a recapture of CCA (the POD less zero of UCC) then your company will need to pay taxes on the recapture amount.




Tax Write-Off
Budget 2019 proposed a 100-per-cent write-off for zero-emission vehicles to support business adoption. Eligible zero-emission vehicles include electric battery, plug-in hybrid (with a battery capacity of at least 15 kWh) or hydrogen fuel cell vehicles, including light-, medium- and heavy-duty vehicles purchased by a business. The proposed measure applies to eligible vehicles purchased on or after March 19, 2019 and before January 1, 2024. Capital costs for eligible zero-emission passenger vehicles (e.g., cars and SUVs) will be deductible up to a limit of $55,000 plus sales tax.

Vehicles in respect of which assistance is paid under the new federal purchase incentive will be ineligible for the 100-per-cent write-off.

 

[jkwan18]

I'm pretty sure you can write off the entire $55,000 in year one. That's the big change (as well as the increase from $30,000 to $55,000).

My real question is whether or not this will be applicable to cars worth more than $55,000 or just cars at $55,000 or less.

The one thing I don't get is what happens when you sell the car. I believe any value received would be taxed as income in your hands if you've written down the entire car...wouldn't it? i.e. buy a model 3 year one...drive it for a year...write off the $55,000 and get $28,000 back if you're top MTR...then in year 2, you sell it for $40,000. I reckon the $40,000 would be taxable as income.

You are correct. When you sell the car, the proceeds will be "recaptured", meaning you'll pay back part of the CCA deducted.

For example, you claimed $55k CCA in 2019, in 2020 you sold the car for $40k, the $40k is recaptured and treated as income for 2020, and you'll be taxed on the $40k.

They put this in so that taxpayers won't keep buying EVs for the $55k CCA write of as a loophole.

 

[sakimano]

You are correct. When you sell the car, the proceeds will be "recaptured", meaning you'll pay back part of the CCA deducted.

For example, you claimed $55k CCA in 2019, in 2020 you sold the car for $40k, the $40k is recaptured and treated as income for 2020, and you'll be taxed on the $40k.

They put this in so that taxpayers won't keep buying EVs for the $55k CCA write of as a loophole.

what if you buy a P100D Ludicrous (or whatever its called now) for $140,000....drive it for 5 years then sell it for $70,000.

You've depreciated the car $70,000.

You wrote off the $55,000 year one.

Do they use a ratio to determine if you have anything to pay back? i.e. $55k out of $140k was written off. Now it's worth $70k so the car has actually depreciated over $55k, so all good?

 

[jkwan18]

what if you buy a P100D Ludicrous (or whatever its called now) for $140,000....drive it for 5 years then sell it for $70,000.

You've depreciated the car $70,000.

You wrote off the $55,000 year one.

Do they use a ratio to determine if you have anything to pay back? i.e. $55k out of $140k was written off. Now it's worth $70k so the car has actually depreciated over $55k, so all good?

When you sell, the proceeds is treated as income ("recapture"). If you are to replace it with another EV , you'll get the $55k again, but I'm not sure the government will still offer such an incentive after 5 years.

 

[jebs2k]

So I obviously claimed the 5k federal rebate along with 5k BC rebate on lthe purchase. Does this mean I don't get any extra tax savings on the car?

 

[sakimano]

When you sell, the proceeds is treated as income ("recapture"). If you are to replace it with another EV , you'll get the $55k again, but I'm not sure the government will still offer such an incentive after 5 years.

or after this october...

 

[Winnie168]

So the SR+ is priced at 54,900. In order to qualify for the federal government 5k incentive, we have to get the base SR+, no premium colours, no 19” wheels, no FSD, no white interior to keep the price below 55k?

 

[dj_gon]

So the SR+ is priced at 54,900. In order to qualify for the federal government 5k incentive, we have to get the base SR+, no premium colours, no 19” wheels, no FSD, no white interior to keep the price below 55k?

Not true. You can get a red exterior and white interior SR+ with 19" wheels and FSD (the most expensive option) but you'll still be able to get the $5k rebate.