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| incentive scheme |
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Example
on How the Scheme Works
Assume that a company recently upgraded its air-conditioning
system, which resulted in significant energy savings. As the project qualifies
for accelerated depreciation allowance, the capital expenditure incurred can be
fully written off in the first year. Let's assume the following:
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$100,000
20% (for Year of Assessment 2005)
10% per annum | The
table below compares the amount of tax that could be reduced under normal 3-year
depreciation and accelerated 1-year depreciation:
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33
1/3% * $100,000 * 20% = |
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(33
1/3% * $100,000 * 20%)/1.1 = |
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(33
1/3% * $100,000 * 20%)/1.21 = |
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| Net
Benefit = $20,000 - $18,238 = $1,762 | In
this example, accelerated 1-year depreciation allows the company to reduce its
tax liability by $20,000 as compared to about $7,000 in the first year. Additionally,
if the value of money decreases by 10% every year, the company could enjoy a net
saving of over $1,700 at the end of the 3 years.
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