Introduction

Canada’s commitment to environmental sustainability extends beyond zero-emission vehicles (ZEVs) for road use. The country’s tax policy now encourages businesses to invest in a broader spectrum of green transportation solutions, including zero-emission automotive equipment and vehicles not covered by the existing classes 54 and 55. This article explores the benefits of the new Capital Cost Allowance (CCA) class 56, temporary enhanced first-year CCA allowances, and the criteria for eligibility.

Capital Cost Allowance (CCA) Class 56

Class 56 has been introduced to provide a temporary enhanced first-year CCA allowance of 100% for eligible zero-emission automotive equipment and vehicles that do not fall under classes 54 and 55. These assets must be acquired after March 1, 2020, and become available for use before 2028.

Enhanced CCA Allowance Phased Out

The enhanced CCA allowance for class 56 is subject to a phased reduction:

• 100% for assets acquired after March 1, 2020, and before 2024.
• 75% for assets acquired after 2023 and before 2026.
• 55% for assets acquired after 2025 and before 2028.

This phased approach incentivizes early adoption of zero-emission automotive equipment and vehicles.

Eligibility Criteria

To qualify for the enhanced first-year CCA allowance under class 56, an asset must meet certain criteria:

• It must be automotive (self-propelled).
• It must be fully electric or powered by hydrogen.
• Partially electric or hydrogen-powered assets (including hybrids) are not eligible.
• The asset must be acquired after March 1, 2020, and become available for use before 2028.

Wide Range of Eligible Assets

Class 56 encompasses a variety of zero-emission automotive equipment and vehicles designed for purposes beyond regular road use:

• Zero-emission aircraft.
• Zero-emission watercraft.
• Trolley buses.
• Railway locomotives.

Furthermore, additions or alterations that convert automotive equipment (other than motor vehicles) into zero-emission property may also qualify under class 56.

CCA Deduction and Elective Exclusion

The CCA for class 56 is deductible on any remaining balance on a declining basis at a rate of 30%. Businesses have the option to elect not to include a vehicle or equipment in class 56. In such cases, the property will be placed in the class that aligns with its eligibility criteria.

Exclusions

Class 56 does exclude property for which CCA or a terminal loss has previously been claimed by another person or partnership, particularly when the equipment was acquired on a tax-deferred “rollover” basis or was previously owned or acquired by the corporation or a non-arm’s length entity.

Conclusion

Class 56 is a testament to Canada’s dedication to environmental sustainability by incentivizing the adoption of a wide range of zero-emission automotive equipment and vehicles. These tax benefits not only reward businesses for investing in cleaner transportation solutions but also contribute to the reduction of greenhouse gas emissions. As the nation accelerates its journey toward a greener future, incorporating zero-emission automotive equipment and vehicles under class 56 can lead to significant tax advantages and a cleaner, more sustainable transportation landscape.