Year End Tax Incentives:  Eco-Incentives and 100% Write-offs

Should you be buying a business asset before year end? There are some great tax incentives available if you’re in the market for new office furniture or a new car. The Accelerated Investment Incentive introduced last fall triples the capital cost allowance claims for assets purchased after November 20, 2018. That means your expenditures for all assets purchased in 2019 will qualify. Eco-friendly cars also qualify for an extra saving. Here are the details:

The AIIowance. Before the change, first-year claims were limited to one-half of the normal claim. Now and until the end of 2023, the first-year claim is 150% of the normal claim. For a vehicle, that could end up being 45% of its total cost! For other equipment, the first-year claim is 30% of the cost.

The first-year cost claim for a vehicle is subject to a number of limitations, including:

• If the vehicle is a passenger vehicle, the capital cost is limited to $30,000 plus applicable taxes.
• If the vehicle is used for both personal and business use, the claim must be prorated so that only the business-use portion of the cost is claimed.
• If purchased in the first year of a business, the claim is limited by the length of the business year.

The Eco-Incentive.  The federal government (as well as the provinces of British Columbia and Quebec) also provide incentives to purchase zero-emission and hybrid vehicles. Federal incentives are $5,000 for a zero-emission or plug-in hybrid vehicle for that cost $45,000 or less ($55,000 if the vehicle has seven or more seats) and $2,500 for shorter-range hybrid vehicles that cost $45,000 or less.

The 2019 federal budget introduced a 100% first-year write-off of zero-emission and hybrid vehicles that cost less than $55,000.   This cost would be net of the eco-incentive (see example 1 below).

Here are some examples:

Example 1

Issue: You purchase a new Tesla 3 electric vehicle in November 2019 for use in your existing business.  The price of the vehicle is $54,990. What incentives are available?

Answer: The federal $5,000 federal incentive is available (even though the cost of the model purchased was more than $45,000 limit for the incentive), reducing the cost to $49,990.  If you live in British Columbia or Quebec, you would also be eligible for additional incentives ($3,000 in B.C. and $11,000 in PQ which would further reduce the cost of the vehicle for CCA purposes). Because this vehicle qualifies for the 100% first-year claim and costs less than $55,000, so long as business use is 100% and the vehicle is available for use before the end of the business year, the full $49,990 (plus any PST payable) can be claimed as a deduction in 2019 (less in BC/PQ) . Any GST or HST paid on the vehicle will be eligible for an input tax credit.  If the business were not a GST registrant, the GST or HST would also be included in the cost and written off in the first year.

Example 2

Issue: You purchase a new Ford Ranger XL in October 2019 for use in your existing business. The cost of the vehicle is $34,695 plus $4,510 HST. What claim can on your tax return?

Answer: Since the vehicle is not a zero-emission vehicle, it is not eligible for any eco-incentives. The vehicle is a class 10 vehicle eligible for a CCA rate of 30%. If the vehicle is used 100% for business and the business is a GST registrant, the $4,510 HST is claimable as an input tax credit. The CCA claim is 45% or $34,695 or $15,612 so long as the vehicle is available for use before the end of the business year.

Additional educational resources: Come to the CE Summits this November to learn more about year-end tax planning for investors and small businesses.

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