Perhaps you’ve heard the story of the rancher who was bragging to the farmer. “I can get in my car at six in the morning, drive for six hours, stop to have lunch, drive another six hours and I still wouldn’t have reached the end of my property,” the rancher said. The farmer simply looked at the rancher in amazement, then replied: “Yeah, I can sympathize with you. I used to have a car like that once, too.”
Have you been thinking about buying a new car? If so, the federal budget tabled this week may present an opportunity for you – particularly if you’re looking to buy an electric or hybrid vehicle. And if you use your car in your work, the tax benefits could be significant. Let me explain.
The 2019 federal budget tabled this week proposes to allow an enhanced deduction for capital cost allowance (CCA, which is depreciation for tax purposes) if a zero-emission vehicle is purchased for work purposes. The change will allow you to deduct the full cost of the vehicle, to a maximum of $55,000 plus sales taxes, in the year of purchase. This enhanced deduction will be available for vehicles purchased in 2019 through 2023 inclusive (the allowed deduction is gradually reduced after that).
You may be thinking: “That’s all well and good, Tim, but I don’t own a business, so this won’t help me.” Not so fast. Employees who use their cars for work may also be entitled to this enhanced deduction. More on this in a minute.
To be eligible, the vehicle must be new (not used), fully electric, a plug-in hybrid (with a batter capacity of at least 15 kWh), or fully powered by hydrogen. Further, the vehicle must be a “motor vehicle” as defined in our tax law (that is, an automotive vehicle for use on streets and highways – which includes most cars). Finally, this enhanced deduction is only available in the year you purchase the vehicle.
To take advantage of this deduction, the vehicle will have to be used for business purposes, which generally allows you to claim various vehicle costs – including CCA. Who does this include? Three groups of people: (1) those who have a business and use their vehicle in that business, (2) a partner who uses his or her vehicle in their work for the partnership, and (3) an employee who uses their own vehicle in their work. In any case, the vehicle must be purchased, not leased (you can’t claim CCA on a leased vehicle).
Let’s see what this may look like for an employee or self-employed person who uses his or her car for work purposes.