Business Investment in Zero-Emission Automotive Vehicles and Equipment


The capital cost allowance (CCA) system determines the deductions that a business may claim each year for income tax purposes in respect of the capital cost of its depreciable property. With some exceptions, depreciable property is divided into CCA classes and a CCA rate for each class of property is prescribed in the Income Tax Regulations. These CCA rates generally reflect the useful life of the property.

As part of Budget 2019, the Government introduced a temporary enhanced first-year CCA rate of 100% in respect of eligible zero-emission vehicles. Two new CCA classes were created. The first is Class 54, which includes zero-emission vehicles that would otherwise be included in Class 10 (most motor vehicles not included in any other class) or 10.1 (passenger vehicles that cost more than $30,000 before sales taxes). The second is Class 55, which includes zero-emission vehicles that would otherwise be included in Class 16 (which includes taxi cabs, vehicles acquired for the purpose of short-term renting or leasing, and heavy trucks and tractors designed for hauling freight). In the case of Class 54, there is a limit of $55,000 (plus sales taxes) on the amount of CCA deductible in respect of each zero-emission passenger vehicle.

Eligibility for Classes 54 and 55 is limited to equipment defined as a "motor vehicle" under the Income Tax Act. As a result of this definition, eligibility for Classes 54 and 55 is restricted to automotive vehicles designed or adapted to be used on highways and streets, with trolley buses and vehicles designed or adapted to be operated exclusively on rails specifically excluded. Consequently, off-road automotive vehicles and equipment are currently excluded from Classes 54 and 55. The excluded equipment can be classified in a number of different CCA classes with different CCA rates.

The Government proposes to provide a temporary enhanced first-year CCA rate of 100% in respect of eligible zero-emission automotive equipment and vehicles that currently do not benefit from the accelerated rate provided by Classes 54 and 55. These vehicles and equipment would be included in new Class 56.

To be eligible for this first-year enhanced allowance, a vehicle or equipment must be automotive (i.e., self-propelled) and fully electric or powered by hydrogen. Vehicles or equipment that are powered partially by electricity or hydrogen (which includes hybrid vehicles and vehicles that require human or animal power for propulsion) would not be eligible.

Class 56 would apply to eligible zero-emission automotive equipment and vehicles that are acquired on or after March 2, 2020 and that become available for use before 2028, subject to a phase-out for equipment and vehicles that become available for use after 2023 (as shown in Table 1). A taxpayer would be able to claim the enhanced allowance in respect of an eligible zero-emission automotive equipment or vehicle only for the taxation year in which the vehicle first becomes available for use.

Table 1. Rates for the First-Year Enhanced Allowance
Enhanced Allowance
Announcement Day - 2023 100%
2024 - 2025 75%
2026 - 2027 55%
2028 onward -

CCA would be deductible on any remaining balances in Class 56 on a declining-balance basis at a rate of 30%. An election would be available to forgo Class 56 treatment and instead include property in the Class in which it would otherwise be eligible.

The Government intends, at an early opportunity, to introduce in Parliament a legislative proposal that would implement the amendment.

Fiscal Cost (in million of dollars)
  2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 Total
NET FISCAL IMPACT s 20 20 10 10 2 62
Note: "s" indicates an amount that is less than $500,000.

Strategic Environmental Assessment Statement

This measure is expected to have positive environmental effects, as it is expected to encourage the adoption of technologies that would reduce emissions of greenhouse gases and air pollutants. This would contribute to the Federal Sustainable Development Strategy targets of:

  • reducing Canada's total greenhouse gas emissions by 30%, relative to 2005 emissions levels, by 2030; and
  • a continued decrease in emissions from 1990 of fine particulate matter, nitrogen oxides, sulphur oxides and volatile organic compounds from all sources.
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