What is the difference between useful life for accounting and for tax?
The accounting useful life (IFRS / local GAAP) is the estimated economic useful life — meant to reflect economic reality. The tax useful life (statutory depreciation tables) is prescribed in standardized form by the tax authority, often shorter than the economic life.
Tax D&A differs from book D&A — the temporary difference creates a deferred tax (a DTL, because tax D&A is usually faster).
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| Asset | Accounting (IFRS / local GAAP) | Tax (statutory tables) |
|---|---|---|
| Machinery | 7–15 years | 8–15 years |
| Buildings | 30–50 years | 33–50 years |
| IT hardware | 3–5 years | 3 years (even 1 year since 2021) |
| Software | 3–5 years | 3 years |
| Passenger cars | 6–8 years | 6 years |
Inputs:
- Book depreciation: straight-line over 10 yrs = $10 p.a.
- Tax depreciation: straight-line over 8 yrs = $12.50 p.a.
Calculation:
```
Difference p.a.: $2.50
DTL build-up p.a.: $2.50 × 30% = $0.75
```
income-statement D&A is book D&A; the cash-tax calculation should use tax D&A. Simplification in standard DCFs: apply the effective tax rate to EBIT, and ignore ΔDTL or fold it into working capital.
For capex-intensive targets (industrials, real estate), show the DTL build-up separately in the DCF — it can shift equity value by 2–5%.