CRA EV Tax Write-Off: CCA Class, Cap, and Phase-Out

A Canadian business that buys a zero-emission vehicle in 2026 can deduct 55% of the vehicle’s eligible capital cost in the first year through the CRA’s EV tax write-off, with the deductible cost for passenger vehicles capped at $61,000 before sales tax.¹ The enhanced rate is on a phase-out track and disappears entirely after 2027, so the year you put the vehicle into service changes the size of your deduction.

The Phase-Out Schedule

The enhanced first-year Capital Cost Allowance (CCA) for zero-emission vehicles started at 100% and has been stepping down since 2024:

Before 2024: 100% first-year deduction
2024 and 2025: 75%
2026 and 2027: 55%
2028 onward: no enhanced rate; the standard class rate applies (30% for passenger vehicles, 40% for taxis and heavy trucks)

These percentages are the effective share of the eligible capital cost you can write off in the year the vehicle first becomes available for use, and the normal half-year rule is suspended for the first year.² After year one, the leftover balance keeps depreciating at the standard rate on a declining balance until it runs out.

Which Vehicles Qualify

A vehicle qualifies as a zero-emission vehicle for CCA purposes if it is fully electric, fully hydrogen-powered, or a plug-in hybrid with a battery capacity of at least 7 kWh.³ It must have been acquired after March 18, 2019, and must become available for use before 2028.

Used vehicles count too. The rule that limited the deduction to brand-new vehicles was removed for vehicles acquired after March 1, 2020, and the 2026 capital cost cap applies to new and used alike.¹

You need to own the vehicle to claim CCA. It must be used to earn business income, and it must be available for use during the tax year in which you first claim the deduction.

The Class and the Cap

Zero-emission passenger vehicles that would otherwise sit in Class 10 or 10.1 go into Class 54 instead, which carries a 30% base declining-balance rate.⁴ Vehicles that would otherwise be in Class 16 — taxis, short-term rental vehicles, and freight-hauling trucks — go into Class 55 at a 40% base rate.

Class 54 applies a hard ceiling on how much of a passenger vehicle’s price counts. For 2026, the limit is $61,000 before federal and provincial sales taxes.¹ Sales taxes are calculated on the capped amount, not the sticker price. If you buy an $80,000 EV in a province with 13% HST, you enter $61,000 plus $7,930 in HST for a deductible capital cost of $68,930. The $19,000 above the cap is not deductible.

Class 55 vehicles are not subject to the passenger vehicle cap. Their full cost enters the class.

One difference from Class 10.1 matters when you sell: Class 54 pools all vehicles together, so recapture and terminal loss rules apply to the whole pool rather than to each vehicle separately.⁵

Rebates Reduce Your Capital Cost

Any government grant, subsidy, or rebate you receive toward the vehicle has to be subtracted from the capital cost before you enter it in your CCA class. This flows from subsection 13(7.1) of the Income Tax Act and covers any form of government assistance.⁶⁵

The federal Electric Vehicle Affordability Program (EVAP), which replaced the former iZEV program in February 2026, gives businesses up to $5,000 for battery-electric and fuel-cell vehicles and up to $2,500 for plug-in hybrids. Eligible vehicles must have a final transaction price of $50,000 or less, though there is no price limit for EVs manufactured in Canada.⁷

Claim CCA on the price you actually paid, net of rebates. A $50,000 EV with a $5,000 EVAP rebate has a capital cost of $45,000. Provincial EV incentives, where they still exist, come off the same way. Claiming CCA on the full sticker price is one of the more common errors the CRA catches on review.

How the Deduction Works: A 2026 Example

Three inputs drive the size of your write-off: the eligible capital cost after the cap and any rebates, the first-year rate for the year the vehicle enters service, and the share of kilometers driven for business.

Say you buy a $55,000 electric SUV in 2026, receive a $5,000 EVAP rebate, and use the vehicle 75% for business:

Capital cost: $55,000 − $5,000 = $50,000 (below the $61,000 cap; sales tax on $50,000 is added on top)
First-year CCA at 55%: $50,000 × 55% = $27,500
Business-use portion: $27,500 × 75% = $20,625 deductible

The remaining $22,500 of undepreciated capital cost keeps depreciating at 30% declining balance in the years after, with the 75% business-use factor applied each year.

The business-use share has to come from a mileage log that tracks kilometers driven for business against total kilometers for the year. An estimate without supporting records will not survive a CRA review.

Selling the Vehicle Later

Because Class 54 pools vehicles together, selling one affects the undepreciated capital cost of the whole class. If the sale proceeds push the class balance below zero, the negative amount comes back into income as recapture. If you sell your last Class 54 vehicle and the class still has a positive balance, you claim the leftover as a terminal loss.

For a vehicle that originally cost more than the $61,000 cap, the CRA adjusts the proceeds of disposition proportionally: your actual sale price is multiplied by the cap divided by the vehicle’s actual cost.⁸ Government assistance received or repaid also feeds into the adjusted-proceeds calculation. The proportional adjustment stops the cap from producing surprise recapture on expensive vehicles.

Leased Vehicles Follow a Different Path

You cannot claim CCA on a vehicle you lease, because you don’t own it. Lease payments themselves are deductible as a business expense, subject to annual prescribed limits set by the Department of Finance, and only the business-use portion counts.¹

Charging Equipment Is a Separate Deduction

If you install a commercial charging station, the equipment has its own CCA treatment. Chargers that supply more than 10 kW but less than 90 kW of continuous power fall into Class 43.1 at a 30% declining-balance rate.⁹ The old Class 43.2, which offered 50%, is no longer available for equipment acquired after 2024. Stations under 10 kW, including most Level 1 and many Level 2 home chargers, do not qualify for Class 43.1 and end up in a general class like Class 8 at 20%.

Filing and Records

Self-employed individuals and partnerships report CCA on Form T2125.¹⁰ Corporations use Schedule 8 filed with the T2 return.¹¹ Keep the purchase invoice, the VIN, the date the vehicle first went into business use, records of any rebates, and the mileage log.

The CRA can review your return after assessment and ask you to prove the deduction. Records and supporting documents must be kept for at least six years from the end of the tax year they relate to, and the CRA recommends keeping records tied to long-term property such as vehicles on a CCA schedule for as long as you own the asset and beyond, since the historical cost keeps affecting future calculations.¹²

1
Department of Finance Canada. Government Announces the 2026 Automobile Deduction Limits and Expense Benefit Rates for Businesses
2
Canada Revenue Agency. Classes of Depreciable Property
3
Tax Interpretations. 4 April 2024 External T.I. 2024-1004651E5 – QZETMA Battery
4
Department of Finance Canada. Expanding Tax Support for Business Investment in Zero-Emission Vehicles
5
Canada.ca. Chapter 4 – Capital Cost Allowance
6
Justice Laws Website. Income Tax Act RSC 1985 c 1 5th Supp – Section 13
7
Transport Canada. Electric Vehicle Affordability Program
8
Canada Revenue Agency. Capital Cost Allowance CCA
9
Canada Revenue Agency. Capital Cost Allowance CCA Classes
10
Canada Revenue Agency. T2125 Statement of Business or Professional Activities
11
Canada Revenue Agency. T2SCH8 Capital Cost Allowance CCA
12
Canada Revenue Agency. Where to Keep Your Records, for How Long and How to Request the Permission to Destroy Them Early