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:

• Capital expenditure = $100,000
• Tax rate = 20% (for Year of Assessment 2005)
• Cost of money = 10% per annum
• Straight line depreciation

The table below compares the amount of tax that could be reduced under normal 3-year depreciation and accelerated 1-year depreciation:

	Normal 3-Year Depreciation		Accelerated 1-Year Depreciation
Year 1	33 1/3% X $100,000 X 20% =	$6,667	$100,000 X 20% =	$20,000
Year 2	(33 1/3% X $100,000 X 20%) / 1.1 =	$6,061	-	-
Year 3	(33 1/3% X $100,000 X 20%) / 1.21 =	$5,510	-	-
Total Tax Offset	-	$18,238	-	$20,000

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.