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Chapter 2: The case for accelerated depreciation

Current arrangements

Some wasting assets are eligible for accelerated depreciation. Different depreciation regimes apply to differing classes of those eligible assets. The current system is inconsistent and lacks a clear conceptual framework.

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Case for special treatment

Accelerated depreciation is the most important tax preference available to business. Its removal, or a reduction in the rate of acceleration, is necessary if there is to be a significant reduction in the company tax rate. Accelerated depreciation is a feature of many overseas tax systems and is seen as important in attracting certain investments.

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A strategy for reform

To review the possible rationales for accelerated depreciation and to consider issues relevant to the design of any accelerated depreciation regime.

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Key policy issues What are the relative merits of accelerated depreciation, or reductions in company tax rates, in terms of boosting Australia’s economic growth and international competitiveness? Are there externalities associated with investments in wasting assets? Is there a bias against long-term investment? Is accelerated depreciation needed on the grounds of international competitiveness?
Different industries will benefit from the alternative measures. It is appropriate to consider whether a broad ranging concession is an appropriate means of addressing externalities. The existing law favours long-lived assets. Are there grounds for continuing such treatment? Clearly helps some industries but other industries would benefit from a trade-off for reduced company tax.
Reform options Option 1
Effective life depreciation.

Option 2
Effective life depreciation with a loading.