Depreciation/Amortisation - Question for accountants...

Hi,

In relation to depreciation, I need to get clarity on a point.

If the 12.5% straight line method is used over 8 years to depreciate a purchase, are you compelled to apply it each year, or can it be deferred to a subsequent year if it is more tax-advantageous to do that? For example, for a low profit year in a business, you may already be in a position that there is no tax to pay. Thus applying the 12.5% depreciation for that year isn't any advantage, as it won't reduce tax any further. It would be better to apply that depreciation in a more profitable, subsequent year whereby then it would help reduce a tax liability.

Same question for amortisation, where that is being done at a 5% rate each year over the course of a 20 year lease.

Let me know your thoughts...

Thanks,
JA

You can choose whatever depreciation method you want, as long as it's reflective of the best accounting estimate of the useful life of the asset and its scrap value (if any). This accounting estimate can also be varied if there is a valid reason for doing so.

However, Revenue allow capital allowances over a period of 8 years for plant and machinery and over 25 years for buildings. This cannot be varied. Tax losses can be carried forward.

It is for very narrow categories of building that tax capital allowances can be claimed for. It is mainly factories where items are manfactured and hotels. There may be others and it is very specific. Most office buildings won't get capital allowances - they may get some element of plant/fixtures & fittings but not the actual building itself.

Thanks folks,
That answered my question...