7 October 2016 APFF Roundtable Q. 5, 2016-0652861C6 F - Véhicules électriques - rabais -- translation

Position: See document

Reasons: See document

October 2016 APFF Roundtable

QUESTION 5

5A ELECTRIC VEHICLES AND ELECTRICITY COST DEDUCTION

The world of electric vehicles is expanding, and several totally electric models are now available on the market. The owners of these vehicles use the electricity from their homes either directly or via specially designed charging terminals. In the majority of cases and several totally electric models are now available on the market. The owners of these vehicles use the electricity from their homes either directly or via specially designed charging terminals. In the majority of cases, the owners have no specific electric meter for charging their vehicle.

Many owners use their vehicle for business purposes or in the course of their employment. With the gasoline auto, it was simple to establish the cost of using gasoline for a particular year, by simply using invoices. The absence of a meter to determine the cost of charging the electric vehicle at home makes this task much more difficult.

Questions to the CRA:

(a) Does the CRA accept that owners who uses their vehicle for business purposes or in the course of their employment can establish their annual electricity cost based on the per-kilometre electricity standard provided by the manufacturer and the annual number of kilometres?

(b) Would the cost of installing a terminal be an eligible capital expenditure in the same situation?

5B) PURCHASE OR LEASE SUBSIDY

For a number of years, the Quebec Government has offered a rebate of up to $8,000 for the purchase or lease of an electric car. Some corporations, in order to reduce greenhouse gas emissions, have opted for this type of vehicle.

Taxable benefit for right of use

Where a car is provided to an employee in the course of the employee’s work, a taxable benefit must be calculated. The calculation of the taxable benefit differs depending on whether the car is leased or purchased.

Where the car is leased, the taxable benefit for the right of use generally corresponds to 2/3 of the monthly leasing costs, including taxes. Where it is a purchased car, the monthly taxable benefit is 2% of the price paid, taxes included.

Deduction for corporation

The corporation that acquires the vehicle will be able to deduct an amount as an expense for depreciation ("CCA"). If it leases it, it will be able to deduct the leasing costs in respect of the vehicle. The amount of deductible leasing costs is limited as provided in section 67.3.

Questions to the CRA:

(a) Will the $8,000 discount affect the calculation of an employee's standby charge, depending on whether the car is purchased or leased? In particular, should the price paid (or monthly rental charges) be taken into account before or after the application of this rebate in computing the taxable benefit?

(b) (i) How will the $8,000 rebate affect the capital cost allowance for a purchased vehicle if the vehicle had a price, before taxes and rebate, of $25,000 , $35,000 or $45,000?
(ii) Is it possible to specify the depreciable class to which the car is to be added in the previous examples?
(Iii) Should the rebate be applied before or after the $30,000 cap applicable to Class 10.1 properties is applied?

(c) (i) How will the $8,000 rebate affect the deductible leasing costs and the various formulas set out in section 67.3?
(ii) Will the manufacturer's list price for the vehicle used in the formula in paragraph (d) of section 67.3 be reduced by the amount of the rebate obtained?

CRA response to Q.5A(a):

In general, for a taxpayer to be able to claim motor vehicle expenses, they must be reasonable in the circumstances and confirmed by supporting documents.

The CRA recognizes the particular character of electric vehicles in the automobile market. However, the CRA currently has no specific policy on the expenses of an electric motor vehicle.

Where it is not possible in practice to produce supporting documentation showing the exact amount of electricity expenses a taxpayer made or incurred for an electric vehicle, the CRA is of the view that, depending on the circumstances, other means for establishing the amount of the expenditure may be acceptable.

For example, the establishment of an average per-kilometer energy cost could be a reasonable method. In such a situation, the taxpayer would also need to take into account the use of pay-charging stations or free charging stations in establishing those costs.

CRA response to Q.5A(b):

The CRA is generally of the view that the installation costs of a capital property are part of its capital cost. Thus, the capital cost of a charging station for electric vehicles includes the installation costs. The question of what constitutes the cost of installing a charging station is a question of fact that cannot be resolved until after consideration of all relevant facts specific to the situation.

The 2016 federal budget proposes to include, effective March 22, 2016, the charging stations for electric vehicles that meet a certain current threshold, in Class 43.1 or 43.2. In other cases, charging stations for electric vehicles are included in Class 8.

CRA response to Q.5B:

In answering the Part B questions, the CRA has assumed that the electric vehicle is an "automobile" and "passenger vehicle" as defined in subsection 248(1) of the Act.

In addition, the CRA has assumed that the APFF is referring to the "Drive Electric Program" of the Québec government. The purpose of this program is to facilitate the acquisition of electric vehicles by offering financial assistance to participants for the purchase or lease of an eligible vehicle. In general, where financial assistance is granted for the purchase or leasing of property, it is necessary to consider the legal relations between the parties to determine the tax treatment of such financial assistance. The APFF has not provided the documents establishing the legal effect on the parties involved in a transaction covered by the "Drive Electric Program". Therefore, the CRA is not able to respond definitively to these questions.

Where the dealer is a partner of the "Drive Electric Program" and the participant authorizes the Québec government to pay the rebate directly to the dealer, some documents suggest that the amount of the financial assistance would be applied as a deposit on the purchase or lease. The CRA responses to Part B are based on the assumption that the financial assistance that the participant is entitled to receive is actually a deposit that is paid or to be paid to a partner dealer.

CRA response to Q.5B(a):

The Income Tax Act provides in paragraph 6(1)(e) a taxable benefit for the right of an employee to use an automobile that the employer has made available for the employee’s personal purposes. For the purposes of paragraph 6(1)(e), the employer must use the formula in subsection 6(2) to calculate a reasonable standby charge for an automobile. This formula includes the "cost of the automobile to the employer" and "total of all amounts that may reasonably be regarded as having been payable to the lessor." These terms are not defined in the Income Tax Act.

If the above assumption is correct, the CRA is of the view in the case of a purchased electric vehicle that the "cost of the automobile to the employer" in the formula in subsection 6(2) would not be reduced by the amount of financial assistance provided by the Government of Québec under the "Drive Electric Program".

If the above assumption is correct, the CRA is of the view in the case of a leased electric vehicle that it would be reasonable to consider that the deposit is an amount payable to the lessor. Thus, the amount of the financial assistance paid would be a lump sum payment that should be prorated over the term of the lease for the purposes of calculating the “total amount that can reasonably be regarded as payable to the lessor” in subsection 6(2).

Finally, where the participant receives the rebate directly from the Québec government, the CRA is of the view that the financial assistance would not reduce the reasonable standby charge for use of an automobile.

CRA response to Q.5B(b):

The capital cost allowance provided under paragraph 20(1)(a) and section 1100 of the Regulations is computed using the capital cost of the properties and a particular rate for each class of depreciable property. Depreciable assets are classified by class as stipulated in Schedule II of the Regulations.

A vehicle could come within Class 10 or Class 10.1. A passenger vehicle where the cost to the taxpayer exceeds $30,000 is included in Class 10.1. Other passenger vehicles come within Class 10.

Furthermore, if the cost to the taxpayer of a passenger vehicle exceeds $30,000, paragraph 13(7)(g) fixes its capital cost at $30,000.

If a taxpayer received or is entitled to receive assistance from a government, subsection 13(7.1) deems that the capital cost of the property to be the amount by which the capital cost to the taxpayer, determined without regard to that subsection, exceeds the amount of government assistance that the taxpayer received or is entitled to receive. Consequently, the CRA is of the view that the capital cost of an electric vehicle determined after the application of paragraph 13(7)(g) will be reduced by the amount of assistance that the taxpayer received or is entitled to receive for this vehicle under the "Drive Electric Program." The question of whether a participant has received or is entitled to receive assistance from a government is a question of fact that cannot be resolved until after an examination of all the facts.

If the above assumption is correct, in the examples, an electric vehicle whose cost is $25,000 will be included in Class 10 and an electric vehicle whose cost is $35,000 or $45,000 will be included in Class 10.1.

Furthermore, in the examples, the capital cost of the electric vehicles for CCA purposes will be $17,000, $22,000 or $22,000, respectively. Finally, the CRA is of the view that the capital cost of the electric vehicle will be the same whether the amount of assistance is paid directly to the participant or the participant authorizes the government to pay the amount of the assistance to a partner dealer.

CRA response to Q.5B(c):

(i) Section 67.3 limits the amount a taxpayer may deduct in respect of lease charges paid or payable for the lease of a passenger vehicle. Where this section applies to a taxpayer, the taxpayer’s expenses are limited to the lesser of the results of the calculations set out in paragraphs 67.3(c) and (d).

Element C in the formula in paragraph 67.3(a) and element A in the formula in paragraph 67.3(b) include the phrase "actual lease charges". This term is not defined in the Income Tax Act.

In the CRA’s view, only the terms of the lease agreement between the dealer and the participant establish the actual lease charges. The actual lease charges include the charges paid or payable under the lease.

If the assumption is true, the CRA believes that the deposit is included in the actual lease charges. Thus, to determine the actual lease charges pursuant to calculating the limit provided in section 67.3, the amount of financial assistance paid or payable would be a lump sum payment which should be prorated over the duration of the lease.

Where the amount of financial assistance is paid or payable directly to the participant, the CRA is of the view that the amount of financial aid would have no impact on the actual lease charges.

(ii) Element C in the formula in paragraph 67.3(d) refers to the “manufacturer’s list price for the vehicle." This term is not defined in the Income Tax Act.

Automobile manufacturers carrying on business in Canada generally use the term "manufacturer suggested retail price" to display the asking price for a particular vehicle. Although this expression is not quite the same as used in the Income Tax Act, the CRA is of the view that the expression “manufacturer’s list price for the vehicle" used in paragraph 67.3(b) should be given the meaning of "manufacturer suggested retail price” used by the automotive industry in Canada. The CRA is of the view that this price does not include the amount of the rebate offered by the "Drive Electric Program."

FOOTNOTES

Due to the our systems requirements, the footnotes contained in the original document are reproduced below:

1 This amount of $30,000 is established pursuant to subsection 13(2) ITA and paragraph 7307(1)(b) ITR.
2 This amount of $30,000 is established pursuant to paragraph 13(7)(g) ITA and paragraph 7307(1)(b) ITR.
3 If the cost of the vehicle is $25,000 and the participant is entitled to receive assistance of $8,000, the capital cost of the electric vehicle for capital cost allowance purposes will be calculated as follows: $25,000 - $8,000 = $17,000.
4 If the cost of the vehicle is $35,000 and the participant is entitled to receive $8,000 in assistance, the capital cost of the electric vehicle for capital cost allowance purposes will be calculated as follows: $30,000 - $8,000 = $22,000.
5 If the cost of the vehicle is $45,000 and the participant is entitled to receive assistance of $8,000, the capital cost of the electric vehicle for capital cost allowance purposes will be calculated as follows: $30,000 - $8,000 = $22,000.

Isabelle Brulotte
2016-065286
October 7, 2016