Read about Investment Boost and how it compares to standard depreciation.
The benefits of Investment Boost
Investment Boost is a form of accelerated depreciation. It does not change the total value of deductions you claim over the life of an asset. However, it does mean you can claim a greater deduction in the 1st year. This means you pay less tax in that year. Because money saved today is worth more than money saved later, this helps you save more overall.
Depreciation – the numbers
If you buy an asset for $100,000 and use a straight-line depreciation rate of 20%, without Investment Boost, you can deduct $20,000 each year for 5 years. With Investment Boost, you can deduct $36,000 in the year you bought the asset and $16,000 for the following years. In both cases, $100,000 has been claimed in deductions at the end of year 4.
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | |
|---|---|---|---|---|---|
| Deductions without Investment Boost | $20,000 | $20,000 | $20,000; | $20,000 | $20,000 |
| Deductions with Investment Boost | $36,000 | $16,000 | $16,000 | $16,000 | $16,000 |
A timing advantage for businesses
However, Investment Boost gives businesses a timing advantage. Earlier deductions lower the present value of the tax paid and mean better cashflows for your business. Using a 4% interest rate, the present value of the deductions in the example are:
- $92,598 without Investment Boost
- $94,078 with Investment Boost.
Depreciation recovered when you sell assets
If you sell an asset partway through its life and you’ve claimed investment Boost, the amount of depreciation recovered you need to declare may be different.
If you sold the asset at the start of year 3 for $40,000, and did not claim an Investment Boost deduction, the asset has an adjusted tax value of $40,000. If you claimed Investment Boost, the asset has an adjusted tax value of $32,000.
There is no depreciation recovery income in the 1st case because the sale price equals the adjusted tax value. There is depreciation recovered in the 2nd case because the sale price is $8,000 higher than the adjusted tax value.