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> Never really understood why we use depreciation in the first place to be honest, rather than just making all expenses immediately deductible. Presumably there
by Sebb767 3y ago
> Never really understood why we use depreciation in the first place to be honest, rather than just making all expenses immediately deductible. Presumably there’s some explanation
It's actually advantageous for most companies. If your company makes 20M in yearly profits and builds a new HQ for 100M and you deduct it immediately, you'd have one year with no taxes and a loss of 80M and 9 years with full taxes. If you write it off over 10 years instead (which reflects you actually using that house for this amount of time), you'll pay less taxes in all those years and save more overall.
- graeme 3y agoBut can’t you carry forward the loss? With current capital rules at least in Canada you don’t have to claim capital expenses in a given year. Politicians often grant accelerated depreciation rates as a tax incentive. Also with inflation the sooner you can declare the loss the more it is worth. Especially if you have non capital expenses to offset. The US govt has recently capitalized software expenses and this is seen as very bad for the industry and investment.