Tax planning – Let’s look into Zero-emission vehicles from a Canadian tax perspective and what the benefits are for a taxpayer.

tax planning
  • by admin
  • December 3, 2023

Year after year, the government introduces tax incentives to promote quality of life and take action to protect the environment. This may be a good tax planning tool when you keep yourself up to date with the introduction of these incentives and apply them to your tax planning to reduce your tax bill while at the same time helping the public in general and contributing to the environment.

Zero-emission vehicles are vehicles that produce no harmful emissions during operation. These vehicles run on alternative energy sources such as electricity, hydrogen, or compressed air, and do not rely on fossil fuels like gasoline or diesel.

The most common types of zero emission vehicles are electric vehicles (EVs) and fuel cell vehicles (FCVs). EVs use electricity stored in batteries to power an electric motor, while FCVs use hydrogen to generate electricity through a chemical reaction, which then powers an electric motor.

Zero emission vehicles are considered an important solution to reducing greenhouse gas emissions and improving air quality, particularly in urban areas where air pollution is a major health concern. They are also becoming more popular as technology improves and their costs become more competitive with traditional fossil-fuel vehicles.

 

To encourage culture of zero-emission vehicles and protect the environment, the Canadian Government has introduced certain incentives for taxpayers.

Canadians can avail certain incentives under the zero-emission vehicle program. The program offers a point-of-sale incentive. However, it’s subject to funding availability.

To avail of the incentive, there is a need to check if the vehicle under consideration meets the criteria to be considered a zero-emission vehicle.

The models of the cars considered eligible have been given as a list of eligible vehicles. Further, for passenger cars, the manufacturer’s retail price needs to be less than $55,000. On the other hand, in terms of high-price trims, the maximum price can be up to $65,000.

Similarly, for a station wagon, SUV (Station Utility Vehicle), pick-up truck, and special purpose vehicle, the price needs to be less than $60,000. On the high price side, the maximum retail price can be up to $70,000.

Following are some additional eligibility criteria for a vehicle to qualify under iZEV (incentive for zero vehicles) program.

  • The vehicle should meet all the requirements mentioned in Motor Vehicle Safety Standards.
  • The vehicle is meant to be used on roads, highways, and public streets.
  • There must be four functional wheels that enable the vehicle to be driven on highways. In simple words, it should not be a slow-moving vehicle.
  • The vehicle must be new. To test if the vehicle is new, it should not have a plate. The buyer should be able to demonstrate (should be able to have a test drive).
  • The eligibility for the incentive is dependent on the length of a lease. For instance, if the length of the lease is 48 months, a full incentive can be availed. On the other hand, if the lease term is less than 48 months, the prorated adjustment is to be made accordingly.

It’s important to note that the eligibility of the vehicle is not impaired if the actual cost exceeds a higher threshold because of the freight, delivery, and other accessories. As these costs might push total cost above a higher threshold. However, eligibility is not impaired because of these additional costs. Further, there is a defined limit of eligibility as one Canadian can only avail one incentive in a calendar year. However, provincial/territorial/municipal Governments and businesses can avail of 20 incentives in a calendar year.

How incentive can be received?

The incentive can be applied at the point of sale. It’s directly applied to the lease agreement/bill of sales by the dealership. However, a dealer is required to submit documentation to get reimbursement for the incentive given to the consumers.

Types of incentives

There are two levels of incentives that include the following.

  • Hydrogen fuel cell, battery electric, longer range plug-in hybrid vehicle, are eligible for incentives up to $5,000. The range of these vehicles has an electric range of more than 50km.
  • Secondly, the shorter range electric vehicles are eligible for an incentive amounting to $2,500 and their electric range is limited to 50 Km.

Conclusion

The Canadian Government has introduced an incentive program for zero emissions. The program is designed to encourage Canadians to opt for clean vehicles. The incentive can be obtained at the point of sale through the dealership. In return, the dealer can get reimbursement for the incentives given to the consumers. However, there are certain limits to the incentives to be availed.

 

Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.

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