Aka How I prevented a $61K Tax exposure loss and got a Tesla X in the process.

#wealth

The Government of Canada has been running two significant Federal incentive program on Zero Emissions Vehicles (ZEV) purchases since 2019. The first is the Incentive for Zero Emissions Vehicles (iZEV) and a second, Federal incentive program for businesses.

While the amount of rebates has decreased over time, a very specific, limited time enhanced Capital Cost Allowance (CCA) opportunity caught my attention. The CCA came into effect January 1st 2023.  In fact, you should NOT participate in the iZEV program, because participating in the  iZEV will automatically disqualify you from the the enhanced CCA incentive benefits. For businesses the enhanced CCA enables a higher deduction in 2023,specifically up to 100% of $61,000, for vehicles acquired between January 1, 2023 and December 31, 2023!

To further differentiate the two Federal incentives, the iZEV is restricted to only what is on the federal governments list of eligible vehicles (BO-Ring!), whereas the CCA is not.

To qualify for the business enhanced CCA, the vehicle must meet the definition of a ZEV. The ZEV definition is fairly broad and includes battery electric vehicles (BEV), Plug in Hybrid Electric Vehicles (PHEV) and hydrogen powered vehicles. The only strict definition for any PHEV is that they must have a battery capacity minimum of 7 KWH.

If you own multiple corporations, the enhanced CCA deductions are permitted for one vehicle per corporation. Pick a corp with enough cashflow and not enough deductions. (Citation needed)

 

Why Tesla?

This is where the offerings that qualify for the $5,000 incentive are just the beginning. Whereas going beyond the qualified listed vehicles gets more interesting. A new vehicle classification of Class 54 Passenger vehicle has been announced:

The ceiling for CCA for Class 54 zero-emission passenger vehicles will be increased from $59,000 to $61,000, before tax, in respect of vehicles (new and used) acquired on or after January 1, 2023.  (Department of Finance)

Technically speaking, the new Ferrari SF90 and Lamborghini Revuelto meets those ZEV definitions and may make sense to some buyers.  Consider that there will be recapture of the deductions upon the sale of the exotic car. So your strategy will require timing finesse to juice up those depreciation curves in your favour. Know what you’re doing and you could potentially parlay this maneuver into a free ride in an exotic… just be ready for an audit (anyone doing this, LMK, I wanna watch!).

Others ZEV options such as the Porsche Taycan, Audi E-Tron GT and the Tesla S plaid should qualify to meet the ZEV definition. I ultimately settled on a 2023 Tesla X 7 seater (must be new purchase to qualify for the $350 Tesla referral bonus). This way, I could tow a car hauler within Ontario and lug my Aventador around, for those charity Ontario Car events such as Starlight, Drive Festival or Cobble Beach, and then drag race the SUV and the Lamborghini, now that would be cool.  With kids heading out of the home, the SUV will reconfigure to a moving van too.

Business purchasers taking advantage of the enhanced CCA can certainly purchase vehicles on the Eligible Vehicles List, to fully optimize CCA deductions on the full purchase price of your ZEV. However, I couldn’t find anything on the list that piqued my interest. For me, once you experience the convenience and reconfigurable utility of 7 seat SUV (or a van…) for a multigenerational home, it’s darn impossible to go back, no matter how un-cool.

                                                                                                               

Further, the enhanced CCA covers new and used ZEVs. Interestingly, because of Tesla’s history of price reductions, a new 2023 Tesla is now less expensive than used! A quick search on trader.ca show used Teslas priced higher than new Teslas, including new Teslas immediately available for delivery in inventory. That’s awful for earlier purchasers much in the same way iPhones depreciate like crazy. The reason for the price reductions are advances in production efficiency and disruptive strategy that is Elon Musk’s style. For example, All Teslas manufactured after a certain time in 2023 will no longer rely on bumper mounted radar proximity sensors for obstacle avoidance. Instead, the obstacle avoidance warnings are now handled by the vehicles on board proximity vision cameras and software. This innovation leverages the use of existing proximity cameras and eliminates the need for installing radar sensors on all new vehicles, resulting in manufacturer cost savings. However, some of the new Tesla 2023 vehicles features have been turned off (eg. Summon, etc.) with his optimization until new software updates are sent out.

Here’s my  step by step;

  1. Set up Tesla account (use your corp work email)
  2. Order and configure your new ZEV (use a Tesla Motors referral code from a Tesla owner buddy to save $350)
  3. Pay the $250 deposit on your Amex (you’re collecting Bonvoy Points right!? If not, we gotta talk)
  4. Set delivery address.
  5. Trade-in? The difference is ultimately a matter of;
    1. 13% tax savings on the trade-in vehicles value – that’s saving $1,300 for every $10K.
    2. Reduced luxury tax calculations may affect you if the vehicle purchase price if its above $100,00K. Will a trade-in that reduces the price below $100K and avoid the liberal luxury tax? IDK.
    3. Is a private sale worth the hassle? There’s lots of vehicle listing scammers; here’s a strategy: list it with no pics 1st. Ignore the first few days of scammers, then a few days later add photos to your listing. Which idiot reaches out to buy a car for cash listed without photos? Idiot Scammers do!

                    a.  sell through your mechanic who has a large social media following. They might ask for 10 points on the sale of your car to leverage their                                 audience and handle the hassles mentioned above.

        • Sell on an auction site with a reserve price.
    • Give to the kids (which we ultimately might do)

     6. Register to your Corp (Tesla will assist with attaching the purchase to your Corporation  – you’ll need evidence of compliance which they will send,            they’ll help Apply for your RIN & green plate

  1. Set delivery dates, final payment, insurance

Completing your tax return (consult your CPA!),

Calculate your CCA claim using the back of Form T777, Statement of Employment Expenses and enter the amount on the applicable line on the front of the form. Enter the amount you can deduct from the Total expenses line (9368) of Form T777 on line 22900 of your return.

Purchasing Strategies:

Tesla offers three options to purchase your new vehicle:

    1. Cash
    2. Lease
    3. Loan

I went with the Loan option because:

  1. The Loan option is completely open (pay off any time without penalties) and has a fixed interest rate:
  1. Go with the longest term to minimize monthly payment amount and leverage the debasement of fiat currency to work in your favour (savings from 2%-8% annually).
    1. The interest rate will typically be the lowest of all the payment options available when closing the longest repayment term.
    2. As of the 4th quarter of 2023, interest rates are planned to hike again, but the sentiment is for rates to cool off toward the end of 2024. So, lock in your fixed rate now and potentially save .25% of interest savings (About $275 on a brand new Tesla X).
    3. Remember, while you are paying interest on the entire loan amount, the interest payment is only for the active duration of the Loan. In other words, you are not paying the TOTAL interest for the total duration of an 8 year (or 8×12=96month) loan if you pay out the loan early.
  2. When the interest rate dips down mid to late 2024, I’ll pay off the Tesla Fixed interest Loan and leverage my personal Cash Surrender Value Line of Credit (CSV LOC) for a lower rate. The CSV LOC is way more flexible, such that I can pay down the loan balance, at any time.
  3. You’re better off investing Cash in other income producing assets; such as using $100K on mortgage downpayment.
  4. Leases are too restrictive. Leases, with their early prepayment penalties can limit your options, even with companies like leasebusters.com to help haul you out of an existing lease.

Landmines (there are many!):

DO:

  • You must have a business Corporation to perform this maneuver.
  • Your business must enough gross business income to justify writing off $61K of taxable income.
  • Do ensure you are prepared to produce automobile milage records if required (I’m told by my counsel this request is rare unless there’s an audit).
  • Do plan to have 80% of use of your ZEV as work related to your purchasing corporation, even though 1-100% is permissible, we want to avoid Audits.
  • Do ensure that the vehicle Is on the road before the end of 2023 – pick one off the existing inventory if you have to.
  • Do ensure your target ZEV meets the Federal ZEV definition: that is plug-in hybrids with a battery capacity of at least 7 kWh and vehicles that are fully electric or powered by hydrogen. 

DO NOT:

  • Do NOT participate in the iZEV purchase incentive – this will automatically disqualify your claim for the enhanced CCA deductions.
  • A search for similar used EVs show an almost 50% depreciation in value in under 5 years.
  • Repairs are eye watering!
  • Potential insurance liability with emerging loss claims.

Maybe…

Do NOT perform this maneuver if your corporation does not generate in excess of $61K of tax deductible income, I’m not certain if the deductions will carry over to the following year. However, I’ll assume since you do have a corporation, the corporate gross income should be in excess of $100K annually otherwise most tax advisors refrain from recommending the formation of a corporation in the first place. If you do generate income in excess of $100K, maybe it’s time to incorporate if you haven’t already done so?

Finally, the Federal iZEV incentive will begin phasing out in 2024 and decrease until its end in March 31st 2025 or earlier if funding is exhausted, As for the enhanced CCA deduction, CCA will be reduced from 100% to 75% in 2024 and lower still in following years. (citation needed) This lends a certain urgency to this opportunity.

Using the High Occupancy Vehicle (HOV) Lane in Ontario

First, the vehicle must be registered, in-person, to a business, at a local Service Ontario to obtain a Registrant Identification Number (RIN). Only after that, are you allowed to register a green plate that can be attached to the vehicle. Still, this incentive is in the same league as the time saving, skip-the-lines snobbery permitted with a Nexus card for US/Canadian border crossings… especially during rush hour!

If you’re not transferring plates, simply get your business RIN number and green plate attached to your vehicle (Tesla will do that for you when required compliance confirmation is sent to them).

PHEV, BEV Risks

Some insurance companies and clubs are realizing the significant fire risk of EV battery packs. The Corvette Club of America, announced in their Rule Book  the section that limits participation of EV versions of the corvette in club events. Certain Ferry companies are prohibiting electric vehicles from boarding their ferries.

Section 1.8.1 item 14 of the NCCC’s updated rulebook reads; “Electric Vehicles/Hybrids using lithium type battery packs are prohibited in competitive events. If driven to NCCC events, they should be parked 30 feet minimum from structures or other vehicles.”

Simply put, the technology to extinguish Lithium Battery fires have not caught up with the battery technology yet. This could lead to future insurance rate increases should you have an EV in your fleet of vehicles – If I were an insurer, the small possibility of an “unscheduled rapid fiery disassembly” would use to justify a rate increase on ZEV owners as a hidden cost… that would be less than ideal for EV owners.

To mitigate this risk, I’m parking the Tesla X outdoors, on the driveway, so that if that puppy every spontaneously bursts into flames, it won’t take out the entire house!

Of course, I’m not an accountant, nor do I play one on TV, so I ran this maneuver by my accountant and it seems to work for my specific circumstance. Could this work for you too? Could I do this any differently? LMK!

 

Use my referral link to buy a Tesla and get awards like 6 months of Free Supercharging and 3 months of Full Self-Driving Capability

https://ts.la/adam47933

 

To claim Capital Cost Allowance (CCA) on your Tesla Model X purchased in 2023 for corporate use in Canada, you’ll need to follow several steps according to guidelines provided by the Canada Revenue Agency (CRA) and other relevant information:

  1. **Determine the Class of Your Vehicle**: Your Tesla Model X, being a zero-emission vehicle, would typically fall under Class 54 or 55, depending on its use and specifics. These classes allow for a more favorable CCA rate due to their zero-emission nature. As of 2023, zero-emission passenger vehicles are eligible for an enhanced first-year CCA deduction of 100% if acquired before 2024 [oai_citation:1,Zero-Emission Vehicles | 2023 TurboTax® Canada Tips](https://turbotax.intuit.ca/tips/zero-emission-vehicles-10875).

 

  1. **Determine the Capital Cost**: The capital cost includes the purchase price of the vehicle (excluding the cost of land), related legal, accounting, engineering, installation fees, and any improvements made to the vehicle after acquisition. You cannot include costs associated with land or living things [oai_citation:2,Basic information about capital cost allowance (CCA) – Canada.ca](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/basic-information-about-capital-cost-allowance.html).

 

  1. **Calculate Your CCA Deduction**: Using the declining balance method, apply the CCA rate to the capital cost of the vehicle. The rate you apply depends on the class of the vehicle. For a zero-emission vehicle, you may claim up to 100% of the capital cost in the first year if the vehicle was acquired before 2024. Remember, you’re not obligated to claim the maximum CCA deduction available in any year. You can claim any amount up to the maximum allowed [oai_citation:3,Basic information about capital cost allowance (CCA) – Canada.ca](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/basic-information-about-capital-cost-allowance.html) [oai_citation:4,Zero-Emission Vehicles | 2023 TurboTax® Canada Tips](https://turbotax.intuit.ca/tips/zero-emission-vehicles-10875).

 

  1. **Understand the Half-Year Rule**: In the year you acquire the depreciable property, you can usually only claim CCA on one-half of your net additions to the class. This is known as the half-year rule, but it doesn’t apply to zero-emission vehicles purchased before 2024, where the full amount can be claimed [oai_citation:5,Basic information about capital cost allowance (CCA) – Canada.ca](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/basic-information-about-capital-cost-allowance.html) [oai_citation:6,Zero-Emission Vehicles | 2023 TurboTax® Canada Tips](https://turbotax.intuit.ca/tips/zero-emission-vehicles-10875).

 

  1. **File the Appropriate Forms**: To claim CCA, you’ll need to fill out Form T2125, Statement of Business or Professional Activities, as part of your tax return. This form is used to report business income and expenses, including CCA deductions [oai_citation:7,Claiming capital cost allowance (CCA) – Canada.ca](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance.html).

 

  1. **Review Provincial Incentives**: Additionally, certain provinces offer rebates or incentives for the purchase or lease of zero-emission vehicles. Check if your province has any such programs that could further benefit your business [oai_citation:8,Zero-Emission Vehicles | 2023 TurboTax® Canada Tips](https://turbotax.intuit.ca/tips/zero-emission-vehicles-10875).

 

For detailed guidelines and to ensure compliance with current tax laws, consult the CRA’s website and consider seeking advice from a tax professional. Information on claiming CCA can be found in the CRA’s guide on [Claiming capital cost allowance (CCA)](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance.html) and [Basic information about capital cost allowance (CCA)](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/basic-information-about-capital-cost-allowance.html). TurboTax Canada also offers insights into [Zero-Emission Vehicles incentives and tax write-offs](https://turbotax.intuit.ca).