If you’re thinking about buying a car for your business in 2025, you’ve probably heard all kinds of conflicting advice:
“EV write-offs are gone.”
“EV rebate is gone.”
“Gas cars are cheaper now—don’t bother with EVs.”
“EV tax benefits are dead.”
“Carbon tax is cancelled so EVs don’t make sense anymore.”
Some of that is half-true. Some of it is just wrong.
The CRA did change the landscape in the last couple of years:
- The federal EV rebate is gone.
- The big first-year EV write-off is gone.
- Gas is cheaper because of the carbon tax cancellation.
But EVs still get a higher depreciation limit. And gas “luxury” vehicles still have a special rule that many people forget about.
Let’s walk through how the rules actually work in 2025 so you can decide whether an EV or a gas vehicle makes more sense for your business.
The One Rule That Never Changes
No matter what vehicle you choose, you only deduct the business-use percentage of your costs.
If your vehicle is 80 percent business and 20 percent personal, you can deduct 80 percent of:
- Gas or electricity
- Insurance
- Repairs and maintenance
- Registration
- Parking for business
- Tolls
- Lease payments (up to CRA limits)
- Loan interest (up to CRA limits)
- Depreciation (CCA)
Everything else in this post sits on top of that rule.
Why You Need to Know About Vehicle CCA Classes
Before we go any further, we need to talk about something the CRA uses behind the scenes to decide how much of your vehicle cost you can deduct each year.
It’s called Capital Cost Allowance, or CCA.
When you buy a vehicle for business, you’re not allowed to deduct the entire purchase price in the year you buy it. Instead, the CRA makes you deduct it slowly over time through CCA, which is the tax version of depreciation.
But here’s the part most people miss:
Not all vehicles are treated the same.
The CRA doesn’t let you choose how quickly to write off your vehicle.
Instead, every vehicle gets assigned to a CCA class, and that class controls:
- how much of the purchase price you can depreciate
- whether there is a cap on the claim
- the annual depreciation rate
- whether the half-year rule applies
- whether recapture applies when you sell it
- whether a larger first-year deduction is allowed
- and even whether you can choose a special EV class at all
Your CCA class literally determines how big your deduction is every single year and how much tax you save or pay back later.
This is why two people can each buy a $75,000 vehicle…
…and end up with completely different tax results.
So before deciding whether a gas vehicle or an EV gives you a better deduction in 2025, we first need to understand which CCA class your vehicle falls into.
That’s where the real differences start.
What Is a CCA Class? (Simple Explanation)
Think of a CCA class like a bucket.
Every business asset you buy — a car, a laptop, a building — gets placed into a specific bucket. Each bucket has its own rules.
For vehicles:
- Some buckets let you deduct more of the cost
- Some buckets cap the amount you can deduct
- Some buckets charge you recapture when you sell
- Some buckets protect you from recapture altogether
- Some buckets have special rates for green technology
- And the CRA does not let you choose your bucket
The class is determined by:
- the type of vehicle
- whether it is gas or electric
- its seating capacity
- how much it costs
- whether it is considered a passenger vehicle
- whether you took the EV rebate (this one surprises people)
Once CRA assigns the class, it determines your tax deduction for the whole life of the vehicle.
That’s why understanding CCA classes is the foundation for everything else in this post.
With that in mind, let’s look at the three classes that matter for 99 percent of business owners buying a vehicle in 2025.
The Only 3 Vehicle CCA Classes Most People Need
For business cars, SUVs, and pickups, 99 percent of the time you only need to care about three classes:
- Class 10 – regular passenger vehicles under $38,000
- Class 10.1 – gas passenger vehicles over $38,000
- Class 54 – zero-emission passenger vehicles (EVs)
Class 10 – Regular Gas Vehicles Under $38,000
This includes standard gas-powered passenger vehicles with a cost up to $38,000 before tax.
Examples:
Toyota Corolla, Honda Civic, Mazda 3, basic small SUVs.
- CCA rate: 30% (15% in Year 1)
- No special “luxury cap” beyond the fact the car is under $38K
- Recapture applies when you sell (we’ll explain recapture in a moment)
Class 10.1 – Gas Passenger Vehicles Over $38,000
This is for all passenger vehicles costing more than $38,000 before tax.
Think:
BMW X3, Lexus RX, Acura MDX, higher-end SUVs, EVs that received rebates and many loaded pickups.
- CRA caps the depreciable cost at $38,000 even if you paid $75K or more
- CCA rate: 30% (15% in Year 1)
- No recapture ever – this is a big deal and we’ll come back to it
Class 54 – Zero-Emission Passenger Vehicles (EV Cars and EV Pickups)
Class 54 covers zero-emission passenger vehicles such as:
- Fully electric cars and SUVs
- Hydrogen-powered vehicles
- EV pickup trucks that are still considered passenger vehicles
To be in Class 54, the vehicle must:
- Be zero-emission, and
- Be a passenger vehicle that would otherwise fall in Class 10 or 10.1, and
- Not have received the federal EV rebate
If the federal iZEV rebate was claimed on the vehicle, it cannot go into Class 54. It gets bumped to Class 10.1 instead.
Key features:
- CRA caps the depreciable cost at $61,000 before tax
- Recapture applies when you sell
- CCA rate: generally 30% (15% in Year 1) for vehicle acquired from 2028 and onwards, but enhanced CCA rate is available (see chart below) if acquisition year is earlier.
So in 2025, new EVs are generally in Class 54 with a $61K limit, unless you got the rebate in the past. New purchases now can’t get that rebate anyway.
Why This Matters: The CRA Limits Create Winners and Losers
Here’s the updated breakdown for 2025:
| Vehicle Type | CCA Class | Depreciable Limit | Recapture? |
| Gas car under $38K | Class 10 | Full cost allowed | Yes |
| Gas car over $38K | Class 10.1 | $38,000 | No |
| Zero-emission passenger car | Class 54 | $61,000 | Yes |
These limits do not change based on:
- Trim level
- Options
- Whether you use it in a corporation or proprietorship
- How much you actually paid
The CRA only cares about the category.
What is Recapture?
This is the part many people skip over, but it’s crucial.
Recapture is the amount of CCA you “over-deducted” when you sell a vehicle for more than its remaining tax value.
Here’s the idea in plain language:
- You claim CCA on a vehicle over the years to reduce your taxable income.
- The tax system assumes the vehicle is going down in value.
- If you later sell it for more than what’s left in the CCA pool (the UCC), CRA says:
“You deducted too much depreciation. We want some of that back.”
- That “give-back” amount is called recapture, and it gets added back to your income.
Two important points:
- Recapture only applies to classes that have recapture (Class 10 and 54, yes; Class 10.1, no).
- Recapture is based on the business-use percentage in the year you sell the vehicle – not across all years.
Recapture and Business Use
If the vehicle is 80 percent business use in the year you sell it, then:
Only 80 percent of the recapture goes back into income.
So even if the gross recapture is $20,000, only $16,000 would be taxable at your business-use level.
Class 10 vs Class 10.1 vs Class 54
- Class 10 (regular gas) – recapture can apply.
- Class 54 (EV) – recapture can apply, but amount used to calculate recapture depends on the initial purchase price. If initial purchase price is greater than the limit of $61K, sale price is proportionally reduced for the purpose of recapture calculation.
- Class 10.1 (gas luxury) – no recapture, ever, even if you sell the vehicle for more than its remaining UCC.
That “no recapture” rule is a major hidden advantage of Class 10.1 vehicles for some people.
What Does This Look Like in Real Life?
Let’s compare two vehicles:
- EV passenger vehicle – Class 54, CCA cap $61,000
- Gas SUV – Class 10.1, CCA cap $38,000
Assumptions:
- Both cost $75,000 before tax
- Sold 3 years later for $30,000
- 80% business use each year
- 50% combined tax rate (for easy math)
- CCA rate: 30% (15% in Year 1), declining balance
CCA Deductions (aka your tax deduction) Over 3 Years
EV (Class 54 – $61K limit):
If you acquire the vehicle in 2025, you are still eligible for enhanced CCA deduction.
CCA claimed in year 1
= $61,000 (limit) x 30% (normal CCA rate) x 1.5 (special enhanced factor allowed for year 2025 purchase)
= $27,450
CCA claimed in year 2 (back to normal 30%)
= Undepreciated capital cost x 30%
= ($61,000 – 27,450) x 30% = $10,065
CCA claimed in year 3 (year sold) – no CCA is claimed in year 3. The undepreciated capital cost (UCC) is used to calculate recapture the year the car is sold.
Total CCA claimed (before business-use proration) = $37,515
Business-use portion (80%):
$37,518 × 80% = $30,012
Tax savings from CCA (at 50% tax rate):
$30,012 × 50% = $15,006
Gas SUV (Class 10.1 – $38K limit):
CCA claimed in year 1
= $38,000 (limit) x 30% (normal CCA rate) x 1/2(half year rule)
= $5,700
CCA claimed in year 2 (back to normal 30%)
= Undepreciated capital cost x 30%
= ($38,000 – 5,700) x 30% = $9,690
CCA claimed in year 3 (year sold), ½ rule applies again
= Undepreciated capital cost x 30% x ½
= ($38,000 – 5,700 – 9,690) x 30% x ½ = $3,392
Total CCA claimed (before business-use proration) = $18,782
Business-use portion (80%):
$18,782 × 80% = $15,025
Tax savings from CCA (at 50% tax rate):
$15,025 × 50% = $7,513
So far, the EV is ahead.
It gave you more CCA and more tax savings, particularly because EV still entitles you to enhanced CCA claim in year 1.
But we haven’t sold the cars yet.
Recapture When the Vehicles Are Sold for $30,000
Now we sell both vehicles for $30,000.
EV (Class 54):
We already did the math on UCC:
- Remaining UCC before sale = $23,485
- Sale price = $30,000
Gross recapture, also known as taxable income, is calculated based on the proceeds of disposition and assume in this case, the proceeds is $30K, and the initial purchase price of the vehicle.
The initial purchase price of the vehicle was $75,000
The gross recapture is calculated as:
Proceeds * Max Limit / Initial purchase price – UCC
= ($30,000 * $61,000 / $75,000) − $23,485 = $915
Only Business-use portion (80%) is taken into income:
$915 × 80% = $732
Tax on recapture (50%):
$732 × 50% = $366 payable in the year of sale.
As you can see, 80% of business-use the year of sale is showing $366 of taxable income. This amount could go down if business use is lowered.
Note that the recapture calculation is different if your purchase price is below the limit of $61,000.
Gas car or EVs (Class 10.1):
Here’s where the special rule matters. No recapture at all.
Even though, on paper, the sale price is more than the remaining UCC, Class 10.1 does not have recapture.
So:
- Recapture = $0
- Tax payable on recapture = $0
Final Net Tax Benefit – Side by Side
Now we put it all together.
Once you account for business use and recapture, the EV tax deductions & recapture income result in a net tax savings of $14,640.
Class 10.1 vehicles end up with $7,513 net tax benefit.
EV claimed under Class 54 vs claimed under Class 10.1.
But… what if you sell the vehicles for $40,000?
If you sell the vehicle for $40,000, your net tax benefits from Class 54 (EVs) are $11,387 as compared to $7,513 for regular vehcles.
If you sell the car in 3 years for $40K, you still get a bigger deduction going with EV.
But… what if I wait till 2026 to purchase my vehicle?
If you wait until 2026 to purchase your vehicle, the enhanced capital cost allowance (aka your tax deduction) calculation for Year 1 will be less. If you wait, your deduction amount can drop from $27,450 (if purchased in 2025) to $15,250 (if purchased in 2026).
And if you sell the vehicle in year 3 again, the overall tax savings by year 3 will decrease from $15,006 (if purchased in 2025) to $11,590 (if purchased in 2026).
If you don’t sell the vehicle, you will eventually get to claim the entire $61,000 (max limit) whether you purchase the vehicle in 2025 or 2026.
So… Is an Electric Vehicle Still Worth It for Tax Purposes?
From a pure tax point of view under 2025 rules:
- EVs (Class 54) still get a higher CCA cap: $61K vs $38K
- EVs can still give larger deductions upfront
- Other vehicles (Class 10.1) get smaller CCA but no recapture
Once you adjust for realistic business-use percentages and look at the full life cycle (purchase → use → sale), the net tax benefit is still WAY better for EVs.
Tax is only one side of the equation. There are other non-tax factors plus your risk and cash-flow preferences.
Choose an EV if you:
- Have easy access to charging at home or work
- Prefer lower long-term maintenance
- Like the driving experience and tech
- Are comfortable with possible recapture on sale
- Want the higher depreciation cap
Choose a gas vehicle if you:
- Prefer predictability and no recapture “surprises”
- Drive long distances where charging is inconvenient
- Want a lower upfront purchase price
- Lease regularly and don’t plan to own long-term
EV *can* give you higher tax benefit but ultimately, you might choose a gas vehicle for your own personal need.
Final Thoughts
If you feel confused by all the changes, you’re not alone.
The EV rebate is gone.
The big first-year EV write-off is gone.
Gas is cheaper without carbon rebate.
And Class 54 enhanced CCA deduction is higher but when you sell your vehicle, you’ll have to take into consideration the potential recapture income… while Class 10.1 keeps its no-recapture advantage.
The good news is: once you understand how Class 10, 10.1 and 54 work—and what recapture really is—you can make a much more confident decision.
Next Steps
We help everyday Canadians navigate the confusing world of taxes—so you can keep more of what you earn. Want to make sure you’re not leaving money on the table? Book a consultation with my team today.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant
